While it’s widely known that used vehicle prices have experienced an extraordinary period of growth over the past few years, lesser known is the extent that prices grew across the vehicle age spectrum. Over the first half of 2013, used vehicle prices were essentially equal to 2012’s historically high average when measuring on an aggregate basis. However, a deeper analysis reveals discernible shifts across model years, with later-model (those less than four years of age) prices softening more than those of their older counterparts.
What does this mean?
NADA primarily attributes these divergent trends in price movement to new market pressures and changes in used vehicle supply. Further, to explain the specific elements driving used price performance at a vehicle age level, NADA released a detailed report that touches on the following key areas:
• Improving economic conditions and credit availability cultivating new vehicle demand
• Changes in used vehicle supply affecting later- and older-model prices
• Advancements in quality and dependability stimulating demand for older vehicles
• NADA’s used vehicle price predictions through 2014
New market forces are taking a toll on later-model prices
During the last recession, consumers who normally purchase new vehicles turned to the used market. Economic conditions improved – lower unemployment levels, a resurgent housing market, equity market gains and a competitive lending environment – driving up auto demand in general. But these forces are doing much more to cultivate new vehicle demand, shifting purchase habits back from when they changed during the recession.
There are three ways we have seen data support this migration:
1. NADA’s new and used demand indices – After reaching a trough in 2009, both new and used demand grew substantially. New demand continues to grow, while used demand leveled in 2012 and began to drift lower the first part of 2013.
2. J.D. Power and Associates’ Power Information Network® (PIN) – The percentage of consumers purchasing a new vehicle after trading in a used one up to five years of age fell from 65% in 2008 to 62% in 2009, before steadily rising each year thereafter.
3. Autodata™ new vehicle incentives data – Spending on the two most prominent forms of incentives – finance and lease subsides – has remained equal to or greater than pre-recession levels this year. Favorable finance rates and lease terms stoke additional demand for new vehicles.
NADA expects the shift in preference from used-to-new and higher incentives to increasingly apply greater downward pressure to later-model used vehicle prices as we move through 2014.
This is the first blog post in a three-part series about our latest white paper, NADA Used Vehicle Price Report: Age-level Analysis and Forecast, which provides greater detail on the specific elements driving used price performance at a vehicle age level in order to help rental company, dealership and financial professionals better manage future fleet purchases, remarketing activities, inventory acquisition and loan origination policies.
Leveraging a combination of the industry’s most comprehensive database of used vehicle transactions, statistical analysis, and unrivaled market expertise, NADA’s white papers and special reports aim to inform industry stakeholders on current and expected used vehicle price movement so they can better maximize today’s opportunities and manage tomorrow’s risk.