In a recent blog post, we discussed the impact of new market forces on later-model prices to help explain the shift in pricing of used cars across model years. But it doesn’t stop there; more than just economic growth, there are other key areas that impact the price of used cars, including advancements in quality and dependability.
Historically speaking, vehicles over five years of age have taken a back seat to their younger, in-warranty counterparts in terms of demand. The result? Vehicles five years of age and older comprised a very small percentage of the available stock on a franchised dealer’s used lot, due in large part to concerns over reliability and costs for unexpected repairs.
However, for the better part of the last 10 years, manufacturers have taken major steps toward improving quality and dependability. This is validated through a variety of metrics, including the following:
1. Used vehicle mileage trends by vehicle age – The average age of vehicles on the road increased from 9.6 years in 2002 to 11.4 years in 2013, and the accumulated mileage on units at auction grew by an average of 8% between 2000 and 2012.
2. J.D. Power and Associates’ Vehicle Dependability Study (VDS) – Nearly a 50% improvement from 2005 to 2013, the average number of problems experienced per 100 vehicles fell from 237 to 126. Meanwhile, the standard deviation of brand-level scores fell from 63.9 to 28.0, indicating more similarity among brands.
3. Franchised dealer distribution of used vehicle sales by vehicle age – As a percentage of all franchised dealer used transactions up to 12 years of age, units six to 12 years of age comprised 38% of all transactions in 2012, up from 26% in 2008. Over the same period, the percentage of units five years of age and below fell from 74% to 63%.
Taking into account the ongoing improvements in quality and dependability, combined with the sales, service and parts opportunities afforded franchised dealers, NADA expects demand for older-model units will remain strong through 2014.
This is the second 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.