McLEAN, Va. -
Used prices are spiking as of late due in part to the regular surge in demand during tax season. However, as supply continues to expand this year, prices are expected to continue the annual decline from post-recession highs.
According to NADA Used Car Guide’s 2014 Used Vehicle Price Forecast report, average wholesale prices of used cars and light trucks up to 8 years old will fall by a range of 0.5 percent to 1 percent this year.
The drop is due primarily to an increase in used supply, but the rate of decline will stay modest, says NADA UCG, due to a few macroeconomic factors.
"Economic growth is expected to accelerate to its fastest pace since 2005, keeping demand for new and used autos high," said Jonathan Banks, executive automotive analyst for NADA UCG. "A strong economy, combined with other positive factors, leads to a more positive outlook for used-vehicle prices in 2014."
Auto loan interest rates for new vehicles were at their lowest level in at least 40 years in 2013, while lender willingness to extend credit was also very high, he added.
"We expect credit to have a slightly less positive effect on used prices as they begin to normalize, but the credit environment will still remain very strong," Banks said.
As always, supply trends will play a large role in how used price changes pan out this year.
According to the report, the supply of units up to five model years in age will grow by 8 percent to 9.6 million units in 2014.
And off-lease volume is expected to continue spiking — and these cars are typically a direct feed to many manufacturers’ CPO programs.
Off-lease volume is estimated to have grown by nearly 15 percent in 2013, and is expected to increase by an additional 18 percent — or 300,000 units — this year, while rental supply is expected to rise by 6.6 percent or 104,000 units, according to NADA UCG data.
The report says late-model used vehicles will be in higher supply, but rates will still stay below pre-recession levels this year.
“Last year's 15.4-percent rise in manufacturer certified pre-owned vehicle sales, predominantly derived from this age group, indicates there will be a strong appetite for these units,” Banks said.
Factors like these will serve to cut down on the level of downward price pressure normally associated with higher supply.
"A decline in the supply of older models along with greater demand for older used vehicles in recent years will keep prices high," Banks said.
Overall, NADA expects that new market pressure and a higher supply of used vehicles will lead to a more substantial 1- to 2-percent decrease in prices for 1- to 5-year-old vehicles.
On the other hand, the report states that tight supply of 6- to 8-year-old units will result in prices being flat or rising slightly. For these older models, NADA expects supply will fall by 11 percent this year.
As far as segment change goes, NADA said annual changes in price will remain largely influenced by supply levels.
Subcompact, compact and luxury midsize cars — segments which tout historically higher supply of late-model vehicles — will see the largest price slides this year, NADA predicts.
Trends on the new-car side of the business aren’t expected to have much impact on used prices in 2014.
Though NADA is predicting that incentives for new vehicles will rise slightly this year, manufactures “more discrete” use of cash incentives and higher all around new-vehicle prices will cut down on potential downward pressure on used prices.
However, Banks cautioned that attractive lease and finance promotions combined with an improving economy may guide more consumers toward new purchases rather than used.
Editor’s Note: For more insight from NADA Used Car Guide’s “2014 Used Vehicle Price Forecast report,” stay tuned to Auto Remarketing Today.