Along with taking a closer look at how volume will impact compact cars’ residual values, RVI Group’s Risk Outlook for June indicated that used-vehicle prices in May softened on a year-over-year comparison but ticked slightly higher on a sequential basis.

The report indicated that real used-vehicle prices for 2- to 5-year-old units on a seasonally adjusted base fell by 4.7 percent year-over-year in May, after adjusting for MSRP. Looking month-over-month, RVI Group determined real used-vehicle prices increased by 1.3 percent.

In the compact cars segment, analysts determined prices fell by 6.9 percent in May on a year-over-year basis.

“The increasing supply of used vehicles and steady growth of incentive activity will continue to put downward pressure on used-car prices,” analysts said in the report. “Lease penetration is expected to remain near historical highs through 2020.

“As the increased supply of off-leased vehicles re-enter the market, we expect to see further declines in used-car prices,” analysts continued, while projecting that real used-vehicle prices are expected to decline 12.7 percent from current levels by 2020.

Residual outlook

RVI Group mentioned the lease penetration rate for first quarter came in at 22.7 percent of total new-vehicle sales.

In May, the firm’s lease supply index rose 22.3 percent when compared to May of last year.

“Given the high leasing rates over the past two years, we expect off-lease supply to continue growing through 2021,” analysts said in the report.

RVI Group continued its residual value discussion by taking a deeper look at compact cars. The firm reiterated that prices for these units softened by 6.9 percent year-over-year in May.

“The supply of used compact cars has grown over the past two years. Looking forward, we expect the supply of used vehicles in this segment to continue to grow through 2020,” analysts added.

More notes on new cars

RVI Group pointed out that light new-vehicle sales declined slightly to 16.7 million SAAR in May. On a year-over-year basis, light vehicle sales declined by 2.4 percent in May.

While the lease penetration rate for the first quarter remained steady on a sequential basis at 22.7 percent of total sales, analysts pointed out that market level incentive activity has continued to grow, increasing to 9.8 percent of MSRP in May from 9.6 percent of MSRP in April.

Also in May, the report noted the new vehicle CPI increased by 0.4 percent on a year-over-year basis but decreased by 0.2 percent on a month-over-month basis.

Economic thoughts

Looking more broadly, RVI Group declared in the report that key economic indicators signal that the U.S. economy is “softening.”

In the first quarter, analysts recapped that GDP grew at an annual rate of 1.2 percent, down from 2.1 percent in the fourth quarter of 2016.

“The slowdown was caused by a decrease in federal government spending, private inventory investment, and state and local government spending that offset positive contributions coming from personal consumption expenditure, exports and residential and nonresidential fixed investment,” RVI Group said in the report.

In May, the report mentioned the U.S. unemployment rate came in at 4.3 percent, a slight decline from 4.4 percent from the previous month, while the labor participation rate showed little change from April to May. Inflation came in at 1.9 percent for May.