NADA Used Car Guide executive analyst Jonathan Banks frequently referenced the “reversal of a market” when he discussed nearly a half dozen different topics during his news conference on Friday to kick off the NADA Convention & Expo.
Banks told the media and other industry observers that the supply of used vehicles, credit conditions for buyers and new-vehicle incentives will reverse course from where they have stood for the past five years.
Beginning with supply, Bank indicated the amount of vehicles in the used market will increase significantly this year.
“We’re looking at a surge of about 800,000 vehicles coming off their leases this year,” Banks said. “Most of that volume will be dominated by compact and midsize cars with midsize and compact utility volume considerably higher as well.”
As a result of the increase, NADA UCG noted that late-model supply is forecasted to hit its highest level since 2008 and will be the biggest drag on used-vehicle prices this year.
So how will the industry handle all those vehicles that eventually will land in dealership inventory? Banks touched on the availability of consumers to secure financing for a purchase.
Banks projected credit conditions will likely reverse this year even though they are currently solid. At some point, however, Banks thinks the Federal Reserve will follow up its December decision to increase its target funds rate.
As a result, NADA UCG predicted that new- and used-vehicle loan rates should increase “subtly.”
Like credit and supply, Banks mentioned new-vehicle incentive spending is forecasted to switch direction this year.
For the past five years, NADA UCG noticed used vehicle prices have been “very strong.” Banks described a low used-vehicle supply and “fantastic” credit conditions contributed to “stable” used-vehicle prices
But as a result of changes to both supply and credit, NADA UCG suggested that OEMs will likely be more aggressive in their incentive spending.
Banks explained the outcomes of the reversal in used-vehicle market trends that will contribute to an expected 5 to 6 percent decline in used prices. Among them, depreciation as a result of higher incentive spending, will likely be a key outcome of the changed market, according to the NADA UCG expert.
Banks went on to mention steeper depreciation will increase the amount of time finance companies and consumers are in a negative equity position. He pointed out that this situation makes it harder for dealerships to sell vehicles in the future and raises the risk of higher incentive pricing.
In general, NADA UCG suspects that depreciation will increase most for trucks and utilities due to sharper increases in supply, however overall declines will be less than on cars.
In one scenario, Banks explained how the number of leases taken instead of traditional financing has exploded over the past several years. Banks pointed out the explosion can partially be attributed to high vehicle retention values as they keep payments low, despite higher new vehicle prices.
If new-vehicle prices are kept low with bigger incentives, Banks emphasized they will become a drag on used-vehicle prices moving forward.
“The big question is how much will OEMs increase incentives to cover the added expense? The size of the lease market would cost the industry hundreds of millions of dollars for midsize utility vehicles alone,” Banks said.
NADA UCG finalizes integration with MonroneyLabels.com
A recently signed deal between NADA Used Car Guide and MonroneyLabels.com created what the companies contend is the fastest and most accurate way for dealers to reproduce vehicle window stickers containing the NADA Values Online product.
As a result of the agreement between the two companies, users of NADA Values Online can print out an accurate, prepopulated, VIN-specific MonroneyLabels.com window sticker — which contains all the original factory options and OEM pricing of the vehicle and all on one sheet of paper.
“We are excited to work with MonroneyLabels.com on this product enhancement to NADA Values Online,” said Mike Stanton, vice president and general manager of NADA Used Car Guide
“Getting used vehicle inventory accurately priced and marketed quickly is a critical part of the selling process,” Stanton continued. “Our customers are empowered to deliver on that part of the process reliably and even more efficiently with this integration."
When asked what about the relationship between the two companies excites him most, MonroneyLabels.com chief executive officer Ned Nielsen said, "NADA Used Car Guide is one of the most trusted names in the industry, and we’re ecstatic about integrating with their leading product, NADA Values Online.
“By using our VIN-specific technology with NADA Values Online, MonroneyLabels.com will help change the way used vehicles are described, appraised and priced by giving everyone the correct factory option packages and pricing as built,” Neilsen went on to say.