Used vehicle depreciation for units up to eight years in age dropped by 3.0% so far in August, a figure higher than what’s typically been recorded for the month. Looking back to 2011 – 2013, previous August declines fell within a range of 1.6%-2.4%.

While August’s depreciation is somewhat out of character for the month, there are a few reasons driving prices down more than usual. For starters, we believe the market is still compensating for the unusually strong spring market that was caused by temporary factors (harsh winter conditions, influx of recalls). The large chunk of the rental unit volume that was kept in service to address these factors has steadily been finding its way to the auction over the past few weeks. For example, auction volume of 2013 and 2014 model year units (which are mostly off-rental vehicles) jumped by 11% on a prior month basis in July. Given that rental supply at auction through July remained down by some 8 – 10% compared to last year, it’s likely that the growth observed in supply last month has carried over into August.  

Secondly, used prices are likely facing pressure from the new side of the market. New vehicle sales have thrived through the spring and summer months, sparked by an improving economy and strong incentives which have ultimately helped draw more consumers into dealer showrooms and in turn increased the number of vehicles being traded in.

In addition, heightened competition within all segments on the new side has forced manufacturers to increase incentives in order to make their products more appealing to consumers. In fact, total incentive spending is now at its highest level since 2010, and compared to 2013 every segment with the exception of luxury mid-size utilities, large pickups and premium luxury cars has seen an increase in incentive spending.

It’s no coincidence that the segments seeing some of the biggest drop-offs in used prices recently are also the ones with some of the biggest incentive increases on the new side. For example, manufacturers have spent an average of $1,436 in subcompact car incentives year-to-date, which is 32% more than they did in 2013. Mid-size ($2,817) and compact cars ($1,823) have both increased incentive spending by 21% compared to 2013. Below is a table showing average incentive spending within each segment year-to-date and the relative change in each versus 2013.


So far this month, luxury segment vehicles are on average performing better than in July. Compact utility prices have fallen by 2.8%, followed by luxury mid-size cars loss of 2.7%. Declines in the remaining luxury segments have all fallen within a tight range of 1.9% - 2.3%.


On the mainstream side of the market, subcompact, compact and mid-size cars continue to perform poorly, down 3.7%, 3.3% and 2.9%, respectively. Trucks and SUVs are performing much better on average and are currently experiencing some of the smallest losses for the month. Large pickup prices continue to show strength, down only 1.4% so far this month, however, their large SUV counterparts have slipped by 2.3%. Prices among remaining segments have fallen within a range of 2.0% - 2.3%.

From January through March of this year average prices grew by a combined 6.1%. Beginning in April, prices began to slip steadily and prices have fallen by a combined 12.1% through mid-August. The small surge and growth in prices recorded over the first three months of 2014 has been completely wiped out by the past five consecutive month’s losses.