Edmunds expects approximately 3.1 million used-car sales this month, which would be up from the 2.7 million used-car sales in December.
The seasonally adjusted annualized rate is expected to come in at 38.9 million, up from 38.7 million last month.
That would be a strong start to what Cox Automotive chief economist Jonathan Smoke and his team project to be another year of growth for the retail pre-owned vehicle market.
That despite a dynamic in the final stretch of 2017 that saw momentum shift to the new-car market.
“I hate to use a football analogy, but it looked like there was a clear winner all throughout the year, being the used-car market,” Smoke said during a conference call with media and analysts earlier this month that included references to both Shakespeare and the gridiron.
“But because of the effect of the hurricane on pricing, I think we started to see some retail momentum switching the other way,” he said.
“And as you know, new-vehicle incentives were actually also at an all-time peak in December,” Smoke said. “So a combination of factors basically gave the new-vehicle market its four strongest months of the year.
“The used-vehicle market didn’t pull back appreciably from a seasonally adjusted perspective, but normally November, December and January are the weakest months of the year for the used-vehicle market.”
That led to a scenario where “a lot of the demand was decidedly shifted towards new on the retail side,” he said.
When used-car prices rise and incentives are heavy on new vehicles, an on-the-fence consumer might opt for the new car, particularly if the vehicles are comparable, Smoke said.
But look for 2018 to eventually see a market correction, as Smoke notes: “We really think the underlying trends, though, driving the market are just the opposite of that.
“Because if you look at the record new-vehicle prices, you look at the combination of higher interest rates and you look at the return to a more normal level of retention values that’s jacking up leasing payments, you effectively have a scenario that lease payments have grown dramatically and are now not just much higher, getting close to new-vehicle finance monthly payments, but they are well above what a used finance payment looks like,” Smoke said.
“And what we see in the data is that households who dominate the used-vehicle market, which are households that are under $50,000 in income, the monthly payment of $400 or less is a very sticky point,” he said.
“So as interest rates have gone up in the past year, we’ve basically seen, actually, that the used-vehicle payment has barely budged,” remaining just less than $400, Smoke said. “Yet the lease payment has continued to move up, because of all of those trends.
“So we think longer-term, once this correction works its way through the system, the used-vehicle market will continue (to) strengthen and have plenty in demand for the off-lease vehicles that will be coming because of the affordability challenge combined with tighter credit, effectively pushing up a whole sector of the market into used that a few years ago might have been buying new.”
Based on initial and not-yet-final data, Cox Automotive estimates there were 39 million used retail sales last year, representing approximately a 1-percent hike.
As it stands, the company is projecting 39.5 million used retail sales for 2018.
That’s up from a prior forecast of 39.3 million units. Cox Automotive bumped up its forecast following passage of federal tax reform in December, Smoke said.
He believes retail demand will show an uptick in spring and summer, “once consumers start to realize that about 80 percent of households should have an increase in take-home pay,” Smoke said.
“And the nature of the distribution means that at least two-thirds of the incremental improvement is going to land on the used market instead of the new-vehicle market.”