“For the better part of a decade however, most manufacturers have made significant strides in improving quality which has helped to assuage consumer concerns in this area,” Banks added.

Beyond quality, Banks went on to point out how vehicle history report advancements from Carfax and AutoCheck have added “consumers’ peace of mind.” Furthermore, a flagging national economy also has prompted buyer to “demand older used vehicles, not as new substitutes, but as substitutes for later-model used vehicles,” according to Banks.

Recognizing the shift in consumer perception and demand, Banks said he is seeing that dealers are increasingly retaining older units acquired via trade to retail in lieu of sending them to auction. In fact, he has even spotted larger dealer groups placing an emphasis on these units, with AutoNation’s opening of dedicated older-model outlets being an example.

Although prices on older units have been nearly flat since March, Banks calculated that year-to-date growth has still out-paced later model-year gains (14 percent versus 5 percent). He said prices for older models are up about 18 percent since January 2008 on a mileage and mix adjusted basis.

From a segment perspective, Banks found that pickups (up 19 percent) and SUVs (up 24 percent) have led the way in terms of year-to-date increases for older models. Meanwhile, he noted passenger cars and CUVs have lagged behind at 11 percent and 6 percent, respectively.

“In addition, older unit prices have remained stable over the course of the past few months, which is counter to historical trends,” Banks offered.

“The relative absence of seasonality may indicate that moderate income and hourly wage households — the core demographic for older used vehicles — are increasingly willing to spend and that lenders are loosening credit restrictions, both positive economic signs,” he continued.

Will Value Jump Continue for Older Models?

Banks is predicting another significant jump in wholesale prices on older units as dealers head into the 2011 spring selling season, especially on well-maintained units with mileage at or below 100,000 miles.

He explained that although price appreciation is on par with vehicles up to five years in age relative to 2008, the additional emphasis placed on older units by dealers and consumers alike has the potential to push gains beyond those of their younger counterparts.

Despite seeing growing value in this older segment, Banks also cautioned that increases will likely be tempered somewhat by the ceiling imposed by later-model prices, which he noted are limited by new-vehicle prices.

In addition, he thinks the overall pool of vehicles that will be six to eight years old in 2011 should be roughly equal to the amount seen this year — with the number of vehicles actually returning to the market most likely increasing as a result of the anticipated growth in new-vehicle sales.

“This, too, will help limit price inflation,” Banks asserted.

“It appears as if a certain degree of the trepidation associated with purchasing older, higher mileage units has waned as quality and reliability have improved,” he went on to say. “When coupled with the heightened level of cost consciousness resident in today’s consumer, demand for older units in reasonable condition should remain high for the foreseeable future with prices remaining strong as a consequence.”

More Indicators for Strong New-Vehicle Sales, Used-Vehicle Values

Continuing on, Banks reiterated the upbeat performances of October and November, which saw the new-vehicle market top 12 million SAAR prompting a prediction of 13 million SAAR coming in 2011. He also noticed a gradual uptick in OEM production figures as well in anticipation of new-vehicle sales growth.

“This may portend to stronger incentives in December and early next year, especially if unemployment figures continue to languish at around 10 percent, but more likely this is an indicator of more positive news to come,” Banks explained.

“In spite of high unemployment rates, demand has so far proven strong enough to absorb the increase in production without manufacturers resorting to artificially high incentive strategies,” he continued.

The analyst explained industry demand and price metrics from CNW Research all confirm strong fundamentals.

For example, Banks noted CNW’s Pent-Up Demand indicator revealed that 46 percent of buyers are new-to-market compared to 17 percent during the first quarter of 2010.

“This bodes well for new vehicle sales in the first quarter of 2011,” Banks declared.

In addition, Banks mentioned transaction prices on new vehicles are increasing, with prices in November reaching a high point for the year. He expects this pattern to continue through December.

“One interesting observation from CNW is that more vehicles are being sold with incentives, however at a much lower average than historical trends,” Banks interjected.

He went on to note a review of Autodata incentive data supports this observation as average incentive spending in October tracked about 15-percent below last year’s levels.

“Consumers appear to be more willing to spend, but still need stimulus from incentives and discounts to actually make a purchase,” Banks insisted. “As further proof of this, non-automotive retail sales figures for November exceeded expectations and were driven by heavy pre-holiday discounting.

“This tentative optimism was evident in last month’s Consumer Confidence figure, which was markedly better than in previous months,” he added. “This being said, November’s value was still well below levels that would be considered indicative of a healthy economy.”

Because of these factors, Banks expects manufacturers to have the ability “to exercise prudence in their incentive strategies.” He believes this strategy should keep sales directionally positive while also keeping used demand and used-vehicle prices relatively stable.

Analysis of Commercial Vehicle Market

Banks’ latest commentary also included a look at how commercial units are performing. The analyst thought October’s sales data provided an interesting look at the relationships between mileage, age and selling price.

Banks found that increased sales of trucks with average mileage and specs appear to have pushed down the averages, bolstering his observation that the “hot” portion of the used-truck market is limited to trucks with lower-than-average mileage.

Continuing on, Banks indicated the sleeper market overall exhibited a minor, but noticeable decline in average price. He attributed two reasons for the decline. The overall age of this market segment increased to a three-year high of 62 months, and a larger volume of fleet-oriented trucks with average mileage were sold in October.

Focusing solely on four-year-old sleeper tractors, Banks discovered the average price decreased less notably.

“This difference is primarily due to the mathematical influence of a multiple-unit package sale from one particular dealership,” Banks pointed out. “If this sale were to be excluded from our calculations, October’s performance would be essentially equal to September’s.

Banks believes it should come as no surprise that average mileage of the overall sleeper segment continued the climb that started in March. The reading slowed down slightly to settle at just above 480,000 for October.

“As our analysis of year-to-date data suggests, this figure likely represents the point at which a used truck’s price premium might be expected to decrease,” Banks determined.

Banks wrapped up his commercial discussion by reviewing October’s data and peering into the future.

“In sum, October’s results were defined by increased sales of slightly older trucks with average mileage and specs,” Banks said. “The fact that selling prices decreased suggests a return to the traditional inverse relationship between volume/mileage and price. This relationship is of course the traditional ‘norm’ for the market, one that has been absent since demand for used trucks exploded in early spring.

“However, it is important to keep in mind that one month does not equal a trend. Given the anomalies we’ve seen this year, it is quite possible that this relationship might shift again next month,” he pointed out.

“Looking forward, the foundation of the used truck market remains strong,” Banks stressed. “Total used-truck sales, both on the dealer level and overall, are ahead of both 2009 and 2008 to date. Freight tonnage has steadily increased in all quarters. Most general economic measures have rebounded except for those that are traditionally the last to turn around (unemployment and consumer behavior). The low new truck production of the past three years will continue to define the performance of the used truck market going forward.”