TORRANCE, CA – Resale values have been high for the past two years-plus in the wake of the automotive industry’s 2009 downturn, but values haven’t been quite as strong in a number of vehicle categories recently. Is this a seasonal adjustment or the beginning of a long-term trend? Automotive Fleet magazine spoke with Black Book’s Ricky Beggs to find out. To start, Beggs said the downward trend in resale values is a seasonal adjustment. He went on to explain why.
“I think it’s a little bit of a trend that we’re going to see for the next 2-3 months,” Beggs said. “It’s a typical thing to see at this time of year. The other thing that’s driving it is that there are a few more trade-ins coming into the market than we’ve been accustomed to over the past couple of years.”
He explained that the total number of vehicles predicted to be sold by the end of the year will be roughly 1.5 million units higher than last year, at 14.2 million units for 2012 compared with only 12.7 million units sold in 2011. More sales mean more trade-ins and a greater supply of used vehicles.
“From the dealers I’ve talked to, about 60% of those new-car sales will have a trade,” Beggs said. “So that’s creating about a 900,000 more potential used cars than we had last year, so there is a little more supply out there. It’s nothing to be alarmed about, but it is a time to make an adjustment.”
Not all vehicle segments are affected equally, with falling fuel prices hitting the small, fuel-efficient car and hybrid categories harder than others. Other categories seeing adjustments include luxury cars and mid-size SUVs.
“We have seen resale values for more fuel efficient, smaller cars drop lately,” Beggs said. “We’re at $3.67 a gallon and two months ago we were sitting at an average gas price of $3.94, so that’s a big change right there. Among the high line cars, the prestige luxury car and luxury car categories are two segments that we’re seeing some adjustments in. I’m not seeing that as a surprise because those categories have bigger adjustments that needs to happen as we switch to the new model-year.”
Beggs cited the amount of competition in the compact car category as a factor affecting its resale values, as the automakers are working to meet upcoming 2016-MY CAFE standards. When it comes to the hybrid category, though, as gas prices rise and fall, so do the resale values of vehicles in this category.
“From Jan to May of this year, that vehicle increased in value $3,200 (the 2010 model). The Civic hybrid increased $1,400. From May 1 to June 1, last the Prius declined by $400, and the Civic hybrid declined by $850,” Beggs said. “If you think of back in 2008 and 2009 when gas prices went crazy, we saw a huge swing in prices. When gas prices came down back then, the resale values for hybrids dropped almost the same amount they had originally gone up by. We won’t see that kind of swing this time, but we’re still seeing a little bit of that trend.”
What about mid-size SUVs? In this case, Beggs said there are a couple of factors.
“I think what’s driving that is because it’s a little older segment. Those vehicles are not as fuel efficient,” Beggs said. “They still have great functionality, but with the advent of the crossover, the only differences between an SUV and a crossover are ride and towing capability. Most people don’t tow, so they’re going for ride and fuel economy.”
As for fleet vehicle segments that are retaining value, core “fleet” sedans, for example those in the mid-size car and entry-level mid-size car categories, have resale values that are staying strong. Beggs said each year the fuel economy of those models improves without the vehicles giving up amenities or size, making them fairly attractive at resale. Beggs foresees decent values for the near future for these categories.
“As far as really seeing anything change in the fleet segment as far as values depreciating, we’re still probably a year away from where there is are more used-cars out there that will affect that group of fleet vehicles very much,” he said.
One effect of high resale values has been short-cycling as fleets try to maximize total cost of ownership. Although resale values are still high, Beggs said opportunities to short-cycle aren’t as numerous as they were.
“Even with the softening in the market, I still think there is pretty strong retention in the marketplace, based on what residuals were projected 2-3 years ago,” Beggs said. “There is still some opportunity to short-cycle now. There’s not as much as there was, not across the board; it depends on the specific models.”
By Greg Basich
Originally posted on Automotive Fleet