Used-car managers in search of models to fill certified pre-owned inventory might have a another challenging year finding units if NADA Used Car Guide’s 2012 projections come true.

NADA UCG began its latest commentary about the used-vehicle market by estimating just how much supply softened a year ago.

Analysts surmised that total used supply in 2011 dropped by about 5 percent relative to the prior year, and that off-lease supply declined by a more significant margin — about 17 percent.

NADA UCG also estimated personal supply — what it dubbed the supply of vehicles originally carrying a retail registration and returning to the secondary market — dropped by about 5 percent last year.

Analysts noted the replenishment of rental fleets in 2010 following a prolonged holding period dictated by the economy and OEM restructurings resulted in a 4-percent increase in the number of off-rental units added to the used supply pool a year ago.

After recapping what unfolded in 2011, NADA UCG projected what’s ahead.

“Over the course of 2012 we’re estimating that used supply will deteriorate by an additional 7 percent and that fleet and retail supply will slide by 6 percent apiece,” analysts shared.

“Off-lease supply, the cornerstone of manufacturer CPO programs and those vehicles most likely to be considered as a new substitute, will plummet by an additional 22 percent,” they continued.

At a segment level, NADA UCG thinks less than a half dozen — all either compact utility or subcompact segments — will see an uptick in supply this year.

“This should provide some relief for dealers given fuel price expectations,” analysts acknowledged.

That said, the latest report indicated used supply will continue to retreat for the 20 remaining NADA segments and more than half — predominantly trucks and large cars — will experience supply losses in the double-digits.

“Considering the additional decline in used supply and demand expectations for this year — especially for late-model certified units — a diverse acquisition strategy will be a necessity for dealers to remain competitive,” NADA UCG recommended.

“And even the smallest of dealers will have to augment traditional auction and trade-in channels with upstream wholesale ones such as Manheim’s OVE and SmartAuction,” analysts continued.

“In addition, dealers will have to continually explore exchanges with fellow dealers, remain aggressive in trade offers to consumers and acquire older vehicles normally eschewed,” they went on to state.

Auction Activity Discussion

NADA UCG moved on to what happened in the lanes last year, noting 2011 capped off another remarkable year of AuctionNet wholesale price growth.

When looking at data on a mileage and mix adjusted basis — which analysts believes allows for an “apples-to-apples” view of prices where underlying swings in age, MSRP, and mileage are mitigated — prices for vehicles up to five years in age grew by 12 percent on a year-over-year basis in the May/June time period before settling down in December to end the year up by a healthy 4 percent.

Relative to November, NADA UCG said every vehicle class experienced an increase in price, with vans leading the pack at nearly 2.5 percent. Prices for all other classes advanced right around 1 percent.

“As has been the case for the majority of the year, annual car price appreciation was second to none in December as prices finished the month 6-percent higher than they were the previous year,” analysts calculated.

“Likewise, van prices also finished out the year strongly by notching a 5-percent annual improvement, while utilities and pickups closed out the year with increases of 3 percent and 2 percent, respectively,” they continued.

At the model-year level — which NADA UCG thinks is a view that provides insight into price performance as vehicles age and accrue mileage although analysts are still adjusting for MSRP changes — December’s rate of depreciation continued the moderating trend began in November, according to the latest report.

“As is seasonally appropriate, this was most true for truck and utility segments (large SUVs, pickups, midsize utilities) where the average rate of decline was less than half of a percent,” analysts found.

“In fact, wholesale prices actually increased for later model year large SUVs which is a reflection of not only the season, but also the scarcity of supply,” they added.

After rising and then falling in dramatic fashion, NADA UCG determined the downward pitch of compact and midsize car prices eased to an average rate of a 1.6-percent dip in December.

The report said midsize van prices fell by 1.5 percent last month, which was a bit more than the 1-percent drop experienced in November.

Although prices retracted more than other segments at 2.5 percent, analysts noticed luxury vehicle depreciation was still better than what is normally expected at this time of year, “which is a statement that applies to all segments.”

NADA UCG went on to stress that while used supply has been trending down in general, the supply at auction has been off to an even larger extent because more vehicles are being sold in an “upstream” channel, such as the grounding dealer and Internet auctions.

“In fact, the total number of vehicles up to five years old sold at auction declined by 23 percent last year, which is 5 points greater than the volume decay witnessed the year before,” analysts tabulated.

“Compare this to the general reduction in used supply of 5 percent and it’s easy to see why bidding over the past year has been particularly ferocious,” analysts emphasized.

“Considering this and December’s atypically strong showing, dealers should expect another highly competitive auction environment in 2012,” NADA UCG projected.

More Explanation of Official Used Car Guide Data

Analysts reiterated a culmination of the factors cited throughout their review — new-vehicle price growth, strong consumer demand and a continued reduction in used supply — combined to push NADA Official Used Car Guide values to unprecedented heights in 2011.

The latest report gave a few examples to illustrate these points:

—The average value of a three-year-old model increased by 5 percent relative to 2010.

—The fuel-efficient compact car segment, which includes models such as the Ford Focus and Honda Fit, led all other segments with a 15-percent year-over-year increase.

—Looking across other segments, performance waned as fuel efficiency deteriorated. The average value for three-year-old midsize vans and cars increased by 9 percent and 8 percent, respectively, while values for large pickups increased by just 1 percent.

—Although large SUV values fell by 2 percent, the result most likely would have been worse had it not been for the 15-percent erosion in used supply witnessed over the course of the year.

—It’s also worth noting that only 25 percent of all 2009 model year units depreciated more than 10.5 percent since last January, while the number depreciating more than 10.5 percent over the course of 2007 was closer to 55 percent.

NADA UCG stressed price improvements are not only a result of fundamental market drivers, but also reflect the strength and quality of product brought to the market, units such as the Hyundai Sonata, Ford Focus and Jeep Grand Cherokee.

“January’s guide reflects recent market trends as well as our expectations that the rate of depreciation will continue to be slower than it has been at any other time in recent memory,” analysts stated.

“As a result, we anticipate that improvements in used-vehicle retention will be sustained over the coming months,” they continued.

“Given our outlook on the market, value adjustments for January’s edition were mild, especially by recent standards,” they added.

Relative to December, the analysis determined half of all NADA segments had average value adjustments ranging from 1 percent to 0.1 percent, while reductions for the other half did not exceed 2.3 percent.

Generally speaking, NADA UCG indicated trucks and utility values changed very little one way or the other, while car values — primarily higher dollar models — experienced the more aggressive downward adjustments.

“While we’ve provided some insight into the coming year throughout our review, there are still clearly many outstanding questions including an outlook for used vehicle prices,” analysts acknowledged.

They then posed a couple of questions that might be on dealers’ minds, too.

—Will prices continue to rise or have they reached a plateau?

—Which segments will over- or underperform the market in general?

“We’ll be putting the final touches on our used-price forecast for the year over the next couple of weeks, so look for answers to these questions and more next month,” NADA UCG analysts concluded.