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Kontos: Used-Vehicle Values Near Tipping Point

May 25, 2010

CARMEL, Ind. — Tom Kontos, ADESA’s chief economist, reported that the steady growth of wholesale used-vehicle values slowed in April but may have already begun to push car buyers toward new-vehicle purchases.

“A rule of thumb we have observed over the years is that, when the average retail used vehicle sales price exceeds 60 percent of the average new vehicle sales price, a portion of used vehicle demand tends to be ‘cannibalized’ by new-vehicle sales,” Kontos said.

The latest ADESA Analytical Services figures put the average used value at 58 percent of the cost of the new version of the same vehicle. However, the tipping point may have already been reached.

“With wholesale prices growing 4 percent in March and 0.3 percent in April,” Kontos said, “it is possible that the 60 percent used-versus-new retail price ratio has now been surpassed.”

That could result in more good news for new-car dealers. Kontos found that franchised dealers enjoyed a 20 percent year-over-year increase in new-vehicle sales in April, compared to a 4.2 percent decrease for used vehicles. However, independent dealers also saw a year-over-year increase in sales, indicating that used units are still very much in demand.

Supporting that position is a new report from Bandon, Ore.-based CNW Research. CNW found that 80,000 used vehicles were leased in April 2010, an increase of 3 percent from the prior year. Used leases are a rarely discussed segment of automotive retail but can serve as an indicator of demand for reliable, late-model units.

“Re-entry of consumers looking for more mainstream models ... has resulted in the cap cost falling to under $36,000,” the CNW report stated. “While that figure is only 2 percent lower than a year ago, it marks the end to a trend that saw cap costs climb to more than $38,000 as lower-income consumers and tight credit left only the best-scoring shoppers able to make a used-lease deal.”

 

 

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