In the final piece of the Used-Car Market Intelligence Report series, Auto Remarketing turns to the dealership lot to look at the used-car sales environment in the first half of 2012.

We also take a peek in the auction lanes to show what dealers had to shell out to secure the used cars their customers demanded.

Used-Vehicle Retail Sales

As 2012 got underway, the used-car market was being bolstered by a variety of factors. Pent-up demand was bringing used-car shoppers back to the lots, as the average age of vehicles on the road made it to 11 years.

Moreover, with more lenders returning to the market and gaining confidence, the loosening of credit also helped more potential buyers turn into customers, bolstering sales this spring.

And as new-car sales surge, with analysts predicting a seasonally adjusted annualized rate above 14 million for this year, this trend is bringing in more trade-ins for dealers, potentially easing the used-car inventory shortage that dealers have been navigating.

Furthermore, in June, used-car prices were expected to fall for the first time, NADA Used Car Guide reported at the time, potentially making used cars more affordable for shoppers.

Also, as the gap between new-car prices and used-car prices widens, this continues to make used cars seem like a better option for shoppers, once again.

At the beginning of June, Jonathan Banks, NADA UCG senior analyst, noted, "The trend of rising prices for used cars will reverse course in June because of declining gasoline prices combined with a normal seasonal slowdown in consumer demand for used cars.”

All of these factors and more, combined to see used-vehicle retail sales climb consistently from the beginning of 2012.

Monthly Spikes in Sales

The year started off with what CNW Research called a “nice bump” in sales from 2012 being a leap year.

And as spring got underway, pushed by easier credit conditions and other factors, used-vehicle sales climbed by more than 8 percent year-over-year in March,
according to CNW.

Specifically, there were 2.71 million used sales in March, compared to 2.50 million in March 2011 and 1.99 million in February, CNW indicated. In the first quarter, there were 6.90 million used sales, compared to 6.31 million in the first three months of 2011.

“Used sales are up quite a bit over February this year and March last year,” CNW president Art Spinella said at the time.

He also noted that among the conditions fostering this growth, “Looser credit is No. 1.”

Interestingly, this spring also saw buyers making purchases based on want, as well as need.

In fact, Spinella said the second strongest factor pushing early spring sales was consumers either being “tired” of their ride or needing to replace their current vehicle.

And as gas prices spiked this spring, at times reaching over $4 a gallon, many shoppers were in the market for a gas sipper.

Next on Spinella’s list of influences for the rise in sales was the trend of last year’s postponers now returning to the market.

“Early data among used-car intenders show pent-up demand continues to shrink as more consumers switch from ‘intending to buy’ to actually making a used-car acquisition,” Spinella noted, pointing out that the amount of used-car pent-up demand is projected to be just 84 percent of where it was a year ago.

And continuing on, April used-car sales rose by double-digits from March, nearing a 50 percent climb.

According to CNW Research, there were 3.79 million used sales in April, which is a 40.2-percent month-over-month rise and a 7-percent hike from April 2011.

“The big April-versus-March increase is normal as weather conditions and refund checks nudge consumers to buy a long-needed used vehicle,” explained Spinella at the time, noting that the used-car market benefited significantly from tax season this year.

And as spring came to a close and summer rolled in, sales continued to see modest growth.

In fact, May brought with it the strongest Memorial Day weekend for both new- and used-vehicle sales in six years, CNW said.

Recapping the weekend’s sales movements, Spinella said via Twitter soon after the holiday: “Overall Memorial day Weekend sales for both new and used best since 2006. Could well carry through the week.”

And the rest of May continued to show strength in used-car sales.

Based on the first 18 days of May, CNW forecasted 4.19 million used sales for the month, which would be a 1.6-percent hike from May 2011. But after the Memorial Day weekend, CNW had pushed that number up to 4.27 million.

And the market actually beat those expectations, as CNW would report in June that there were 4.31 million used sales for May, up from 4.13 million in May 2011.

Looking at expectations for June, Art Spinella recently noted: “Based on the first 19 days of June, used sales should top 4.4 million units, but that would be down about 1.5 percent compared to last year. On a year-to-date basis, the industry remains up 4.4 percent.”

Edmunds.com was projecting a more modest 2.98 million used sales for June, while TrueCar was projecting 4.77 million used sales.

Used-Vehicle Prices

Of course, obtaining all those used units to meet demand can cost dealers a pretty penny.

As 2011 came to a close, dealers were feeling the effects of unusually high wholesale prices, as well as a shortage of quality used vehicles coming through the lanes.

And it seems the beginning of this year showed a similar picture, but action in the lanes remained hot.

Black Book’s managing editor Ricky Beggs contends that from January of this year through early May, the “used market showed amazing strength in wholesale value retention and increasing values as well as the amount of demand resulting in strong sales conversion levels on the auction lanes.”

But, as the end of May rolled around with summer just on the horizon, Beggs said the market began to shift, noting there has been a change in the “wholesale pattern,” as inventory shortages began to loosen.

He then went on to highlight several factors that are driving the current market shift.

“ No. 1, it is a seasonal reaction as the market must adjust and make room for another model year. We are just a couple of months away from the ‘official’ arrival of the 2013s. No. 2 is there is an increase in the number of used vehicles in the marketplace,” he noted, stressing inventory is, in fact, beginning to improve.

Even though the end-of-term lease returns are continuing to decline, as new-car sales surge the number of available trade-ins from new-car stores alone is much greater today than any time since 2010, Beggs asserted.

“If you look at the 2011 U.S. auto sales level of 12.7 million and compare that to the current levels for 2012 that are expected to be in the 14.2 SAAR, that comes to 1.5 million more new sales; and with a normal 60 percent trade-in level, that’s an additional 900,000 more used cars in the market for 2012,” Beggs explained.

“And as the new-car sales increase, some of the franchised stores are not as aggressive in their focus on the used market,” he added.

Spring’s Surging Gas Prices

And as dealers and consumers alike watched gas price rates spike in early 2012 into the spring, did these high rates have a lasting effect on used-vehicle values?

“As gas prices steadily climbed from the first of the year we didn’t see much affect on the truck market; but we did see an increased interest, and thus, an increase in used wholesale pricing on some of the more fuel-efficient vehicles including some of the hybrid models,” Beggs said, noting that gas sippers did see quite an increase in price in the lanes.

But the changes were not as drastic as in 2008 and 2009, when consumers saw gas prices spike in a similar fashion.

But as fuel rates stabilize, Beggs noted that “at the current gas price levels, we feel the segments with the potential to be the softest in retention values will be the compact cars and the entry level cars.

“Part of this is that consumers want a bigger size and more comfort than most cars in the A & B segments offer. It is amazing what comfort features are now included in these smaller cars today, but physical space is in demand. With not as much demand, we still have almost every manufacturer being a player in these segments,” he continued, stressing that a drop in gas prices will lessen demand for these smaller units.

As for the truck and utility market, Beggs contends that an overall improvement in economy will not only drive demand, but help hold values.

“These segments have adjusted in volumes to where no matter the price of gas and diesel fuel, the need for these type units is reflective of the supplies available. We don’t see any major concerns for fluctuation in values of the pickup trucks and vans relative to gas prices,” he further explained.

2012’s Opportunities

Beggs contends that the year so far has presented quite a few opportunities for used-car dealers, spurred by consumer pent-up demand as well as a recovering economy.

“There is plenty of pent-up demand in the consumer market for those who have delayed a new or used-car purchase because of their lower consumer confidence levels,” Beggs reiterated.

“The average age of cars on the road today is almost 11 years,” he added.

He also noted that as the economy improves, what Beggs called “want” buyers are going to enter the market — those more willing to purchase based on desire, not need.

“The recent level of new-car sales until the May results was reflective of the ‘want’ buyer entering the market. The key is how many more ‘want’ buyers will be entering the purchasing path in the next few months,” he explained.

“This creates more used opportunities for both the independent and franchised dealers. With the softening market, dealers can offer a better buy for consumers. And let’s not forget the opportunities that the lender community provides as they have been more aggressive in providing funding,” he continued, noting that as credit loosens, more buyers may make it onto the lots.

Editor’s Note: To read the two previous installments of this series, see Part I and Part II.