Industry experts have predicted that late-model used supply will continue to grow in 2013, and this assertion appears to be well-founded. As spring gets underway, reports of higher overall auction volume, trade-ins and off-rental vehicles flowing onto dealers’ lots have flooded the presses.

“The outlook for improved used-vehicle supplies is an encouraging development for dealers. This increase in available vehicles should ease some of the high wholesale costs that have created pressure on dealer profit margins in recent years,” Dale Pollak, president of vAuto, recently told Auto Remarketing, offering some encouraging words for dealers.

But it’s not time to sit back yet; there are still questions to be answered, and used supply remains tighter than normal levels seen in the past.

Used sales growth, slightly higher auction volume and modestly lower auction prices were among the stories of 2012. Will these trends continue into this year?

Auction Volume to Spike

According to the National Auto Auction Association’s fourth-quarter Auction Industry Report for 2012, these trends are expected to continue this year.

NAAA economist Ira Silver prepared the report, and indicated in it that Q4 2012 used-vehicle sales were “up a strong 6.2 percent, bringing the 2012 increase to 4.5 percent.”

Furthermore, this past year, 40.5 million used vehicles were sold, the most in five years, Silver noted.

“Continued strong new sales will provide supply to the used market, leading to another increase in 2013 in the 5 percent area,” Silver shared, noting the sales spike is not over for the industry.
 
As for action in the lanes, auction volume was up for the last quarter of 2012.

“As hoped for, in the fourth quarter, the strength in dealer consignment and manufacturing/factory finally more than offset the drag from lease/fleet and overall auction volume increased by 2.4 percent,” Silver said, pointing out a used supply situation that continues to improve.

And volume is expected to rise over this year, as well.

“As fleet/lease volume strengthens this year, total volume gains will accelerate,” Silver explained.

He added: “This year we expect to see continued auction volume gains in dealer consignment and manufacturing/factory; and a turnaround in fleet/lease, giving the industry an up year with a significant total volume increase.”

Late-Model Supply to Grow, But Will Still Remain ‘Tight’

Though increasing auction volume and an uptick in late-model supply certainly bodes well for dealers, NADA Used Car Guide cautions that used supply will “remain tight by historical standards.”

“While late-model supply is set to grow (age three or less), it’s important to remember that the pool of units up to eight years in age will continue to slip this year (down 3 percent) and will be 18 percent below where it was prior to 2009,” said Jonathan Banks, executive automotive analyst for NADA Used Car Guide. “Similarly, late-model supply will be down 25 percent from the pre-09 average even with the estimated 14 percent increase factored in.”

And NADA told the same story in its February 2013 Guidelines report.

The good news first:

NADA expects used-vehicle supply for units up to three years in age to grow by 8 percent or 500,000 units in 2013, primarily as a result of a 14-percent jump in off-lease volume.

Despite this expected growth in late-model supply,  NADA is projecting there will be an additional 3-percent drop in the pool of vehicles up to eight years old this year.

Furthermore, though supply will loosen, dealers that have been in the game long enough to have enjoyed pre-recession levels will most likely still be feeling the shortages.

“Late-model volume will still be approximately 25 percent below where it was in the three years leading up to 2009 even after this year’s increase is factored in,” Banks explained in the report.

“So while the growth in late-model supply will apply some downward pressure to younger used-vehicle prices, the continued slide in early-model supply will benefit prices of older models.”

Rental and Lease Market to Help Ramp Up Used Supply

Dealers have been waiting quite a few years now for a new wave of off-lease and off-rental vehicles and fleets to hit the lanes.

And 2013 might just be their lucky year.

According to the Manheim 2013 Used Car Market Report, “With replacement levels expected to rise in 2012 and 2013, the number of off-rental units, albeit with high mileage, will also increase.”

And NADA’s Banks is encouraging dealers to “leverage” the increased growth in rental returns to boost their used inventory and sales.

NADA predicts rental volume to grow by 5 percent on an annual basis in 2013, compared to 2012’s growth of 3 percent.

“This will allow dealers greater access to nearly-new used units particularly in the midsize van, compact utility, subcompact car and midsize car segments,” Banks added, sharing some of the large volume rental segments.

And NADA predicts off-lease supply to grow by 14 percent this year.

“A large portion of the incoming wholesale supplies flows from off-lease vehicles. These vehicles can offer a compelling one-owner value proposition for the next buyer. Dealers will need to be careful as they acquire, recondition and price these vehicles, given there is likely to be margin and price pressure from competing units available on the market,” Pollak said, offering a few tips for dealers looking to ramp up used inventory from incoming off-rental units.  

Interestingly, an increase in off-lease supply may prove to be an opportunity for dealers to boost their certified pre-owned business, in particular.

“The additional supply will help dealers keep CPO momentum going by meeting the needs of those consumers looking to replace an aging vehicle with a more affordable alternative to new, while at the same time providing the peace of mind associated with buying a brand new vehicle,” Banks said.

“CPO units also turn at a faster rate (less time on the lot, less floor plan expense) and provide a stronger relationship building opportunity for the dealer and consumer (through service and warranty repair visits),” he continued.

Sarah Rubenoff can be reached at srubenoff@autoremarketing.com. Continue the conversation with Auto Remarketing on both LinkedIn and Twitter.