Pre-owned vehicles sales reached a record high last year of 39.2 million, according to the 2017 Edmunds Used Car Report.
This was up 1.6 percent from 2016. And for perspective on how much used sales growth the industry has experienced in the past five years, that number represents a 4.3-percent increase from 2012.
So, why the record highs last year? Most of the spike can be attributed to an increase in used inventory stemming from off-lease vehicles hitting the market — as well as heightened demand for replacement vehicles due to Hurricanes Harvey and Irma.
Edmunds analysts also pointed out that this very same increase in off-lease models has also served to slow used-vehicle price growth. Prices rose by just 1.4 percent last year, according to the report. That’s after spiking by an average of 3.6 percent every year from 2012-2016.
“Consumer demand for SUVs — which were limited in supply — is really what helped fuel the modest price growth that the used market eked out in 2017,” said Ivan Drury, senior manager of industry analysis at Edmunds.
Consequently, shoppers in the market for passenger cars might be in luck. Drury expects these shoppers to find deals on 2- to 3-year-old passenger cars, “since their residual values were hit so hard” by the aforementioned trend in SUV shopping.
In fact, a recurring theme throughout the report: The increase in near-new off-lease vehicles is putting pressure on residual values.
As such, Edmunds took a look at trends in the rental fleet market to get a handle on the trends. Edmunds analysts found the number of new vehicles sold to rental agencies and the number of vehicles leased by consumers dropped to 5.9 million vehicles last year, compared to 6.2 million in 2016.
“Looking forward, we expect to see leasing become more expensive as interest rates climb and residuals continue to fall,” Drury said. “However, rental sales are at risk of slowing as more consumers gravitate toward ride-hailing services and peer-to-peer car sharing.”
That could lessen supply in the future – making way for stronger residual values — but automakers are fully aware of the softening numbers in today’s market. And they are taking action in an effort to keep sales volumes high, while also protecting fragile residual values.
For example, since trucks and SUVs tend to hold their value better, rental car customers are going to be finding more larger vehicles “equipped with unexpected creature comforts,” Edmunds.com pointed out. And then, of course, that means more of these very same expensive models on dealer's used lots in the next two to three years.
“Years ago, strong residuals allowed automakers the ability to be more liberal in their short-term sales strategies, but as residuals begin to fall in more vehicle categories, sales driven by retail leasing and daily rentals will become increasingly scrutinized,” said Drury. “Companies will need to balance their portfolios going forward in order to minimize residual losses.”
For more insight from the latest Edmunds Used Car Report, stay tuned to Auto Remarketing Today, where we will be covering different aspects and analysis of the annual offering.