Used-Vehicle Market Bracing for Off-Lease Tidal Wave
February 16, 2017
• by Staff
SANTA MONICA, Calif. — A record number of newer model-year, off-lease vehicles returning to dealer lots this year will be putting significant upward pressure on the late-model used market, according to Edmunds' February used-vehicle report.
Along with the expected influx of newer model-year, off-lease vehicles, less people are expected to trade in a car during a new-car purchase, further adding to the upward pressure on the late-model pre-owned market, the firm added.
"While low interest rates and consistent values are making it possible for the market to absorb these newer, more expensive off-lease vehicles, demand for older, less expensive used vehicles hasn't waned," said Edmunds Senior Analyst Ivan Drury. "Fewer older vehicles available puts sellers at an advantage, particularly those looking to sell vehicles that are in high demand like trucks and SUVs."
In 2016, approximately 45% of car buyers traded in a vehicle during their new-car purchase. In 2017, that number is expected to drop to 43%, which could result in the number of trade-ins falling below 6 million this year — a scenario that has not occurred since 2012, Edmunds noted.
In 2016, approximately 38.5 million used vehicles were sold, an increase of 0.6% from 2015. Franchise used-vehicle sales amounted to approximately 11.6 million, an increase of 1.5% despite fewer trade-ins on new-vehicle sales, according to the firm. And of those franchised used-vehicle sales, 58% were used vehicles that were three years old or newer, the firm added.
Additionally, due to the rise in leasing, the average age of a used vehicle sold by a franchise dealer in 2016 came in at a record-low 4.1 years old. The average vehicle transaction price for the used segment also saw a record in 2016, a record-high of $19,189.
To find this data, Edmunds analysts looked at lease rates from 2014 to get a rough estimate of how many vehicles should be expected to return to dealers in 2017. Lease volume was 10.6% higher in 2014 compared to 2013. And since lease volumes also saw year-over-year growth in 2015 and 2016, newer-model lease returns are expected to rise for the next couple of years. As a result, used-vehicle ages are expected to continue to get younger — and, conversely, the availability of late-model used cars is expected to continue to decline — for the foreseeable future, according to Edmunds data.
With economic patterns driven by the pandemic, normal seasonal patterns in the wholesale market were not observed for most of the year. We saw a similar picture in 2009, at the end of the Great Recession.