The automotive industry has seen a dramatic year so far.
NADA chief economist Steven Szakaly highlighted what he expects will round out to 17.3 million new light vehicle sales by the end of 2015 and further forecasted a figure of 17.7 million for 2016, ushering in the “beginning of the end” for what Szakaly labeled as “pent-up demand” for light vehicles.
And that hunger for light vehicles may soon be waning for used vehicles, as well. But not quite yet.
Jonathan Banks, the vice president of valuation and analytics for NADA Used Car Guide, a division of J.D. Power, also said during today’s conference call that the used-car market has had an incredible year from the standpoint of prices and absorbing used-supply increases, now leading to a post-recession high in used-vehicle supply.
“In fact, according to NADA Used Car Guide’s data, used supply for zero to eight-year-old vehicles is up by 1.9 percent, reaching somewhere around the 17 million mark,” Banks said. “What’s important about that number is it’s the first time we’ve seen an increase in used supply since pre-recession. So it's the first time we’ve seen an increase in used supply and prices have still remained firm because of that pent up demand.”
But as more and more people are purchasing new or new-to-them vehicles, that demand is dropping – and since vehicles are not only lasting longer but finance terms are getting longer than ever, the used-vehicle pool is expected to grow considerably.
Banks expects, moving into 2016, that the pool of zero- to eight-year-old used vehicles will increase by 3.4 percent – and by another 4.5 percent in 2017.
Looking at prices so far this year, Banks also said that prices on zero- to eight-year-old vehicles have been following a fairly consistent, seasonal pace.
“What that means is we’ve seen the prices increase year-over-year in the beginning of the year – January, February and March – which is a normal, seasonal pattern,” Banks said. “We’ve been seeing prices follow a normal pattern through the spring and summer. And in the fall, when you expect to see the most vehicle depreciation, we’ve been seeing that. Except October did somewhat better than what NADA expected. And a lot of this really has to do with the strong demand from the economy improvements.”
But, like mentioned before, that demand is expected to subside – and one key reason behind that may be the predicted wave of lease returns expected over the next couple of years.
“Lease returns will play the most dramatic role in the used supply increases,” Banks said. “In fact, from 2014 to 2017, lease returns alone will grow by about 58 percent. And a lot of that volume is going to be concentrated on some segments that aren’t really the segments that traditionally have this huge amount of off-lease supply. And that would be segments like the midsize car, compact car and compact utility segments, where you see really a high amount of growth in used supply returning to the market as we move out toward 2017.”
Stay tuned to Auto Remarketing as we plan to take a further dive into the data with NADA Used Car Guide to gain a better understanding of when these off-lease vehicles are expected to return and what segments will be prevalent.