New-Car Market Tied to Lowering Used Prices

CARY, N.C. - 

Expanding used supply means lower pre-owned prices — but analysts say trends on the new-car side of the market will serve to push used rates down every further.

Analysts at ALG and RVI both cited new-car sales as a factor that will lower used prices in the coming years.

According to ALG, this trend has reappeared for the first time since 2008.

ALG analysts say a “wave” of newer vehicles from trade-ins has started to flood the secondhand market and will gradually bring resale values back down to pre-recession levels.

“The continued strength of new-car sales is increasing the availability of high-quality used cars as shoppers continue to trade in their old vehicles,” said Larry Dominique, president of ALG and executive vice president at TrueCar. “Additionally, because of the popularity of short 24- and 36-month leases, the drought of used-car supply is already starting to subside. As a result, we expect a steady decline in used-vehicle prices.”

And RVI analysts said in the latest Risk Outlook report that as new-car competition increases and new-car prices decline — pushing many used customers to the new market — this trend will also play a part in pushing used prices down even further, as well.

Residuals are also expected to have an impact on used-car prices.

According to ALG, by 2017 the average new vehicle will retain 49.4 percent of its value after three years, compared to the 54.6-percent retention recorded for vehicles through June 2014.

Used units will follow suit as ALG predicts growing supply will put the residual average back at 46 percent — the pre-recession rate — by 2019.

 “The lower residual values will create a greater gulf between used- and new-vehicle prices, which could steer more consumers to purchase used vehicles,” said Dominique. “Consequently, we expect automakers to increase new-car incentives to keep up their current sales pace.”

ALG is predicting used prices will fall by 5.2 percent by 2017. Over at RVI, the company expects nominal used prices to drop by 10 percent by 2017.

For more on used price movement, see the following Auto Remarketing story:

Used Prices Expected to Fall by 10% by 2019



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