Resale Values Improve, But Still Below 2001 Levels
A decline in the number of late-model used vehicles in the wholesale market has helped to increase prices for out-of-service fleet vehicles. “Decreased supply and stable demand have helped to bolster used-vehicle prices,” said Bill Cieslak, VP, Vehicle Operations for PHH Arval in Sparks, Md.
A key reason for the decline in the number of used vehicles in the wholesale market is due to the drop-off in consumer lease portfolios. The volume of retail leasing tapered off starting in 2001.
“Despite the fact that there is a smaller supply of vehicles in the wholesale market, there is no scarcity of vehicles,” said Cieslak. “You can go to an auction anytime during the week and there are plenty of vehicles to buy.”
Some of the very recent increase in the number of used-vehicles in the wholesale marketplace is the result of aggressive and successful retail incentive programs offered by manufacturers, which have generated a higher than normal volume of late-model trade-ins. “Many dealers are wholesaling or consigning these trade-ins to auction to decrease their burgeoning used-vehicle inventories.”
However, retail incentive programs for new vehicles are also attracting many traditional used-vehicle buyers. “For instance, the GM, Ford, and DaimlerChrysler employee sale price retail incentive programs are enticing many potential used-vehicle buyers to buy new vehicles instead.”
Wholesale Demand for Used Fleet Units by Vehicle Segment
Intermediate and Compact Cars: Much of the modest increase in wholesale resale prices has occurred among intermediate and compact passenger vehicles.
“There is strong retail demand for these vehicles, especially compacts, due to the high cost of fuel,” said Cieslak.
Vans and SUVs: The decrease in resale values for minivans is the result of changing consumer-buying preferences. “On the plus side, minivans are the great value in the used-vehicle market today, said Cieslak.”
SUV prices have also declined due to an increased supply of SUVs in the wholesale market and the high cost of fuel. “In addition, crossovers and hybrids are pulling buyers away from the SUV segment,” said Cieslak.
Pickup Trucks and Cargo Vans: Cargo vans and pickups with heavy-duty suspensions and larger drivetrains continue to be in strong demand in the secondary market, especially among small businesses. However, resale prices for consumer-configured pickups are soft due to an increased inventory of units and the high cost of gasoline.
Forecast of Used-Vehicle Market
It is likely that retail incentive programs will continue to be extremely competitive in the 2006-model year, which will temper used-vehicle prices. “While I am optimistic about the strength of the used-vehicle market, there is no need for irrational exuberance,” said Cieslak.