Ongoing new-vehicle incentives, an uncertain economy, high unemployment, and flat new-vehicle transaction pricing are among the reasons the used-vehicle market is forecast to remain soft for the balance of the 2003 calendar year.

“The primary reason for the soft prices for used vehicles is because of the ongoing new-vehicle incentives,” said Steve Bloom, VP of fleet services for Enterprise Fleet Services, a fleet man-agement company headquartered in St. Louis. “New-vehicle incentives have depressed the prices of one-to-five-year-old vehicles in a proportional level and to a lesser extent the prices of three- to five-year-old vehicles.”

Also, dealers buying at auction are being very conservative in their purchases. “Dealers are very selective as to which vehicles they bid on,” said Bloom. “They are seeking to buy vehicles as inexpensively as they can and are not being as aggressive in their bidding as they have been in the past. Dealers do not want to risk building up their used-vehicle inventories with the volatility of the market.”

In addition, the strategies of auto manufacturers to keep new-vehicle transaction pricing flat for the past several years have created a ceiling that is preventing increases or maintaining used-vehicle prices.

“All of these factors are changing the dynamics of the normal seasonality in the used-vehicle market,” said Bloom. One example of the change in seasonality is the minimization of the traditional spring spike in used-vehicle prices that was much more prominent in years past.

One positive development for the used-vehicle market for the 2004 calendar year and beyond is the ongoing decline in the projected volume of retail off-lease vehicles that will be remarketed at auctions. “Although this will not have an immediate affect on three- to five-year-old vehicles, it may in the years to come,” said Bloom.

- By Mike Antich