The current used-vehicle market conditions are similar to, but not as extreme, as those experienced last October, i.e., low demand and high supply resulting from very aggressive rebates and subsidized financing compounded by a high supply of returned rental vehicles. At that time, the market self adjusted within 60 days.
The following factors influenced that self-adjustment, and we anticipate the same process will repeat itself in the current market:
1. Zero-percent financing and aggressive rebates temporarily boosted new-car sales by:
a. Pulling future sales to the present. This effect is temporary due to the limited of future buyers.
b. Convincing used-car shoppers to buy new instead. This effect is generally short lived because reduced demand on used vehicles lowers prices (within 30 days) enough to re-attract buyers.
c. Lower used-car prices undermine the new-car dealer’s ability to accept trade-ins because new-car buyers balk at the low trade-in values.
2. The sales boost for new cars disappears within 60 days (unless it is replaced with an even more aggressive round of price cuts), and demand for used vehicles returns to normal. Prices improve to some extent but not necessarily to what they were before the situation began.
Because the fall selling season is quickly approaching -- which usually provides the highest de-mand for used vehicles -- we expect prices to stabilize and possibly improve. Barring a double dip in the recession, we continue to expect a relatively healthy market this fall, with a typical drop in prices around Thanksgiving.
The preceding article was written by Peter Klopchic, VP, Vehicle Remarketing for CitiCapital Fleet in Dallas, TX.