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McLEAN, Va. — Thanks largely to a trio of economic and market influences, NADA Used Car Guide is projecting continued strength and greater stability in the used-vehicle market.

Jonathan Banks, executive automotive analyst for NADA Used Car Guide, said these predictions were based on fuel prices leveling off at less than $3 per gallon, healthier economic indicators and an overall economic recovery perhaps on the horizon. Moreover, he said the fact that automakers are, for the most part, "trying to build to meet demand removing some of the downward pressure on used-vehicle values from new-car incentives," is also helping. 

Banks explained that the aforementioned three factors lead to steadiness in the market, particularly for cars. Moreover, these influences will also likely cut down on the volatility the last two years have seen.  

"We are already seeing mainstream segment sales prices improving, but this is due to seasonal effects and not to the cost of fuel, which appears to be factoring little into purchase price decisions," Banks noted. "Concerns about high fuel prices would cause mainstream and economy segments to outperform large and luxury segments, and that is not happening at this time."

It appears that gas prices may only reach the $3 range briefly in calendar-year 2010, whereas in mid-January NADA Used Car Guide expected fuel costs to hit that range by April.

Banks suggested that large and luxury car segments and all truck segments should see boosted values from these relatively lower fuel costs.

"In fact, we have witnessed increases on wholesale prices during the first few weeks in February in most luxury and large car segments, driven by the expectation of lower fuel prices and by a more stable home price environment, which is a critical wealth effect driver that gives consumers confidence to purchase a luxury vehicle," Banks noted.

Continuing on, the values of older midsize SUVs started to climb in February and this is likely to persist next month due to relatively high demand and relatively low supply.

Moreover, what will also likely push these values up is the supply of one- to three-year-old midsize SUVs, which Banks said will likely be "constrained" in the next few months.

He also noted: "In what may be an indicator of a further improving economy, the auction prices of large vans continue to improve. Through the first two weeks of February the average price of a one- to five-year-old van is up $108 from the full month of January. Since December 2008 the prices of these vans have rocketed up $3,030, or nearly 31 percent in just 14 months and are now near their pre-recession levels of 2007."

Looking at some of the February's initial wholesale price data in more detail, pickups showed the greatest month-over-month increase in AuctionNet price through Feb. 10, up approximately 1.2 percent.

Cars climbed 0.7 percent, van prices jumped almost 0.6 percent, and vans moved ahead nearly 0.5 percent.

CUVs improved just under 0.3 percent.

NADA Used Car Guide Offers Toyota Analysis

Moving on, Banks also offered some observations and analysis on the short-term wholesale impact of the Toyota recalls.

While acknowledging that the analysis of how Toyota units performed at auction last week "was largely inconclusive at this time," Banks pointed out that newer models (2008-09) showed decreased volume and "above-average softness."

"Meanwhile, not surprisingly, auction volume is down  (approximately) 23 percent week-over-week as many Toyota models have been sidelined from the lanes based on recommendations from NAAA," Banks shared.

As far as the retail side, prices for Toyota fell 3 percent. Rival Honda, meanwhile, showed a slim gain.

Banks emphasized that Toyota needs to quickly deliver a "confident and consistent" message to consumers to avoid as much long-term damage as possible.

"From a resale perspective this will be imperative since Toyota models hold a strong price premium to substitute models with comparable actual quality (i.e., Chevrolet, Ford and Hyundai)," he explained. "If Toyota's perception is permanently damaged this premium significantly increases their downside risk in resale performance."

Competitors who may not have been cross-shopped with Toyota previously may gain more attention, as shoppers are likely to become more aware those brands' quality, Banks noted.

"This will drive down the price premium that was driven by consumer's perception that the actual quality of Toyota models is significantly better than competitive products," he pointed out.

Banks said NADA will continue to follow these trends and provide additional news and data in its guidebook values accordingly, but does not expect a "crisis in resale performance."

However, he noted that "we have already incorporated downward adjustments in our March forecasts that position our values toward the lower end of the range of auction prices already witnessed on Toyota products."

Looking ahead, analysts expects a short-term softening for recalled Toyota units largely because there will be a strong supply of used units that had previously been taken out of the auction market going through the lanes.  

"This was partially driven by the guidance from NAAA to suspend sales until the safety issues were resolved," Banks shared. "Toyota Financial Services began a campaign on the recalled vehicles which will now be repaired on-site and sold in the auctions."

As most know, NAAA came out on Thursday to support the TFS plan and recommended "that all vehicles impacted by the AOA Pedal recall have had the outstanding campaign completed prior to offering these vehicles in open in-lane sales."   

Banks argues that "this will create an imbalance of used supply and demand in the short term as these vehicles enter a relatively negative consumer demand environment in larger volumes than recent months, but this should level out during the upcoming months." 

When evaluating risk, Banks contends that there is more of a downside risk for Toyota's used-car values than there was during the negative news that surrounded bankruptcy and instability among General Motors and Chrysler.

"From a risk standpoint there is more downside risk when evaluating Toyota's used-car values compared to other negative news regarding bankruptcy and instability that we witnessed recently for GM and Chrysler brands," he argued. "This is largely because Toyota has a longer way to fall compared to its domestic counterparts if the situation is not fixed soon and to the satisfaction of consumers."

Banks added: "Toyota's strong perception continues to be challenged as additional quality issues, government intervention, and media reports have exposed inconsistencies and perhaps wider reaching quality concerns." 

He went to note that Toyota's ability to mitigate any potential damage in the used market will be impacted by its response to the situation, and pointed out that the Toyota has already made efforts to build back consumers' confidence and keep the brand's "prestige" intact.

"However, we are likely to see an erosion in the prestige Toyota currently enjoys in the used market to some degree regardless of Toyota's response," Banks concluded.