NADA UCG: Car Market is ‘Bright Spot’ On 2012’s Rough US Economy
This year was an eventful one for the U.S. — presidential elections, high gas prices, superstorms and fear of a financial crisis lit the 2012 landscape.
But as NADA’s Jonathan Banks pointed out in the latest Guidelines report, the new- and used-car market “weathered these conditions extremely well and were inarguably bright spots in an otherwise overcast environment.”
Now, the question stands: how will the used market fair this year?
“Although the debate surrounding raising the debt ceiling and the deferred sequester pose decided risks to economic activity in the first part of the year, market fundamentals point to a solid — albeit not as remarkable — 2013,” Banks said.
He also noted that the aging vehicle population as well as pent-up demand will continue to ramp up both new- and used-vehicle sales.
Also, what Banks called a “favorable credit environment” and a slowly but surely improving housing market are bound to help used sales, as well.
Also, gas prices may not be as much of an issue this year, perhaps leading consumers to choose the car they want, not the car they need to make it in an environment plagued by exorbitant gas prices.
The U.S. Energy Information Administration (EIA) is predicting that gasoline prices will be 20 cents lower on average than what was recorded last year (and 10 cents lower than in 2011), the report shared.
“This would of course reduce fuel-related expenses for consumers as well as the used vehicle price volatility associated with gasoline spikes,” Banks explained.
And as consumer confidence rises, so will demand, which raises the issue of used inventory.
“Used supply for units up to eight years in age will continue to fall through 2013, however later-model year volume (i.e. units under four years in age) will grow due to an approximately 250,000 unit increase in off-lease supply; this will mute the benefit of falling supply across other model years,” Banks explained.
So, more potential buyers are expected to enter the used market this year, and prices are high.
“While it’s expected that used-vehicle prices will give back a portion of the ground gained last year and that the four-year stint of used price growth has most likely come to an end, prices this year aren’t expected to drop precipitously and instead should remain high by historical standards,” Banks said.
Banks also touched on what NADA UCG predicts to be a year of incentive slowdowns.
“As far as incentives are concerned, manufacturers have demonstrated a commitment to reducing incentive spending over the past two years and to rely on incentives as a tactical mechanism rather than a strategic one,” Banks wrote.
“That being said, OEMs will be harder pressed to remain steadfast in their current approach as new sales growth tails off, which of course presents downside risk to used vehicle prices,” he continued.
Ovreall, NADA shared its market outlook “remains positive.”