On the surface, the statistics certainly suggest strong retention.

There was a 3.6-percent month-over-month increase and a 2.4-percent year-over-year gain in wholesale prices last month, according to the latest data from ADESA Analytical Services.

Based on this growth, it’s a valid assumption that this means the wholesale market is conditioned to take on the kind of supply spike forecasted in 2015.

But, take that with a grain of salt, says ADESA’s Tom Kontos, especially when considering certain market segments where a “different picture emerges,” he noted.

“One would be quick to conclude that the market seems to be admirably absorbing the highly anticipated growth in supply, and that would be true,” he said in the latest Kontos Kommentary.

“Still, it is important to disaggregate averages and indexes in order to look at the underlying impact the supply of off-rental and off-lease vehicles is having on current to 1-year-old models and 3-year-old models, respectively,” he continued. 

Vehicles in these age groups did show price declines, Kontos said, with two major trends having a big influence.

First, after some slowdown at the end of last year, factory sales for heavy consignments of off-rental units picked up at auction.

Additionally,  Kontos said, online and physical auction markets are continuing to get increasing numbers of off-lease cars from terms written three years ago.

“Strong retail demand, especially for CPO units, as well as moderate incentives, have partially offset these impacts for these age segments and the used-vehicle market as a whole,” he added.

Further Impact of Off-Rental Push

There’s certainly a couple outliers among the 15 segment classes included in ADESA’s data set. For example, the full-size car segment showed a 40.7-percent increase in price from December and a 26.2-percent gain from January 2014. Two other segments (compact cars, full-size vans) showed double-digit-percentage price increases on a sequential basis, while the most of the rest showed more moderate trend lines. 

“Much of the month-over-month and year-over-year price variance by model class segment is driven by higher off-rental program vehicle sales this January compared to December and January 2014,” Kontos explained.

“Thus, not a lot should be read into the double-digit increases in average prices seen in some model class segments,” he added. “However, even after stripping off the impact of higher program vehicle sales, prices for midsize SUVs and full-size pickups still showed strength”.

Seller Segment Trends

Kontos notes that manufacturer consignment prices dropped 10.8 percent month-over-month and fell 11.5 percent from January 2014.

“As anticipated in this report last month, the tailwind to prices that might have been provided by the absence of program units due to sale curtailments in December, turned into a headwind as these units are being released in early 2015,” Kontos said. 

Dealer consignment prices climbed 2.2 percent month-over-month and 3.7 percent year-over-year, leading Kontos to assert that independents have rapidly picked up the “excess” inventory that franchised dealers have collected via trade-ins on robust new-car sales.

Meanwhile, there was a 5.2-percent month-over-month uptick in fleet/lease consignment prices, which grew 1.3 percent year-over-year.

“This indicates healthy demand for older repo and commercial fleet vehicles, even as off-rental risk and off-lease prices face downward pressure from higher supply,” Kontos said.

Additional Thoughts on Off-Lease Impact

Speaking of that higher supply, when it comes to the increase in used-car volume expected over the next few years, “the story within the story,” says Jonathan Banks of NADA Used Car Guide, is off-lease vehicles.

Banks was speaking at a press conference during last month’s NADA Convention & Expo.

“This is really a big story,” Banks said of overall used volume increases, “and the story within the story is the lease volume coming back. We hear a lot about it, and it is concerning from a used-vehicle retention standpoint.”

NADA is expecting a 20-percent increase in off-lease volume for 2015, following a similar gain last year, Banks said.

In terms of overall used volume, this year, he said, “we’ll actually see a growth in that pool of zero to 8(-year-old vehicles) by about 1.9 percent. To put it in perspective, it was flat for ’14.”

And “the real story” in the off-lease volume trends comes in 2017, Banks said.

“The 25-percent lease penetration that we had this year (2014) — which represents about 3.2 million vehicles — that translates into record off-lease volumes coming back to the market in 2017,” he said.

But the 20-percent growth in off-lease volumes for 2015, Banks added, should still put supply of late-model vehicles at a rather reasonable level.

“There’s going to be some downward pressure, but nothing major,” he said.  “In ’17, we’ll re-evaluate that situation.”