As is customary for this time of year, increasing numbers of off-rental units have been finding their way to the auction over the past couple of months. 

Historically, rental companies reduce the size of their fleets at the end of the busy summer months, and as a result, large quantities of late model cars, utility vehicles, and minivans find their way to the auction.
Typically this concentrated mass of weight will abnormally depress used prices for a period of time, especially on those models with a sizable rental penetration rate, before prices stabilize and even move back up again after volume has dissipated.

This year we’re seeing the same pattern play out, but in something of an interesting twist, the compact car segment leads the pack in terms of price declines over the past two months.  This can be attributed to not only the recent run-up in volume through the lanes but also to an acute drop-off in demand relative to what we witnessed in the late spring and early summer. 

High fuel prices and the natural disasters in Japan worked together to concentrate retail demand on fuel efficient vehicles in the first half of the year, particularly compact cars. 

At the same time, wholesale off-rental supply through the first half of the year remained well below year-ago levels (see the “AuctionNet Fleet Volume” chart).  This was arguably due to a variety of reasons including the increased retention of used stock due to new replacement unit concerns, 2011 model year launches of redesigned or all new models (e.g. Ford Focus and Chevy Cruze), and strong consumer rental demand. 

This spike in demand in conjunction with the reduction in supply would push compact car prices up by ~26% from January through late May/early June. 

Since that time however, gas prices have fallen by about $.40 per gallon, new vehicle production is fully back online, and we’re many weeks removed from the summer vacation season.  Although the spike in compact car fleet volume hasn’t been quite as acute as for say minivans, the price impact has been more pronounced because of the downward momentum already in place due to falling demand and a correction from the historical high prices in May-June. 
As a result, we’ve seen used prices drop by ~8% from August through the second week of October, and 16% since reaching the peak back in Q2 (compare this to minivan declines of 7% and 9% for the same periods). 

Even though prices are falling, there are some positive takeaways, including that dealers will have an easier time sourcing stock – at least for the time being.  In addition, as the adage of “what goes up must also come down” held true for prices the same can be said for cyclical fleet volume.  Once fleet volume recedes we should see compact car prices stabilize and still finish the year up by a healthy 5%.