Softer last month, used-car market to give new cars 'some competition'

CARY, N.C. - 

It would appear that the post-hurricane recovery that drove wholesale used-car prices higher is no longer having that same impact. And though full-year figures are expected to climb, used-car retail sales softened a bit last month.

But look for a used-car retail market that challenges the new-car market, amid heavy lease returns adding fuel to the certifed pre-owned market. 

Those were just some of the findings from analyses at the outset of December from Cox Automotive, which released a wholesale price index this week after holding a conference call with reporters on the retail side Dec. 1. 

Wholesale price streak winds down

For the first time since April, the Manheim Used Vehicle Index did not hit a record high. And November’s reading of 134.5 was the lowest since August, according to a report accompanying the index.

Compared to October, wholesale car prices were down 1.29 percent, when adjusted for mix, mileage and seasonality.

Explaining the slowdown from the record streak, the Cox Automotive Industry Insights team said it was a matter of prices getting back to where they were before the hurricanes hit in late summer.

The recovery after those storms drove the post-August gains in prices. In fact, the Cox Automotive report suggests that “most” of the uptick was storm recovery-driven.

“As has been the case with prior devastating storms, used-vehicle prices are now returning to pre-storm levels,” the report said. “Underlying vehicle depreciation rates have been accelerating to catch up to where prices would have been without the abnormal demand and scarce supply in September and October.”

Despite the sequential dip, the index was still up 7.8 percent year-over-year with wholesale prices climbing in five of the six major market segments. The most significant of those increases was in the pickup segment, where prices were up 11.5 percent.

Retail sales down, but could flex in ’18

Cox Automotive estimates that there was a 4-percent decrease in retail used-car sales last month. The seasonally adjusted annualized rate for used-car sales was softer at 34 million units, but the company still anticipates full-year sales to reach 39.1 million, which would be a nearly 2-percent hike.

And while the report indicates the pre-owned market “took a backseat as momentum favored new-vehicle sales” in November, analysts with the company say that trend might reverse in 2018.

In a conference call with the media, Autotrader executive analyst Michelle Krebs said:  “Next year, we also see an influx of off-lease vehicles coming that will give new-vehicle sales some competition, and especially in the utility segment, which we expect to continue to grow, but there could be some battling going on between new and nearly new.”

The index report pointed to a November new-car SAAR of 17.4 million, making it three consecutive months it has been above 17 million.  

New-car sales were up 1 percent year-over-year in November, but year-to-date sales are 2-percent softer than the year-ago period.

Looking ahead to 2018, Cox Automotive is currently eyeing around 16.6 million new-car sales, Krebs said during the call, which also included Kelley Blue Book senior analyst Alec Gutierrez.

Off-lease continues to rise

As for the off-lease gains expected for next year, “we think that the mix will be better, more in line with what consumers want,” Krebs said.

“More crossovers and sport utilities are coming back off lease, whereas before it was mostly cars,” she said.

Sales of those vehicles are likely to compete with new-car sales. And a good bit of that could be certified pre-owned cars.

“We expect the market to be cooling down,” Gutierrez said of new cars. “There’s going to be a plethora of alternatives for consumers, especially in the certified pre-owned space.”

Off-lease volume “over the next couple of years” will be stronger than an already high level in 2017, he said.

It might not slow any time soon.

Though down from 29.49 percent in the third quarter of last year, 29.14 percent of new-car sales in Q3 were leases, according to the State of the Automotive Finance Market report from Experian. 

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