Age, pricing in used-car market show 'transition'

SANTA MONICA, Calif.  - 

“The used market as a whole is definitely in the midst of a significant transition that’s only just starting to accelerate.”

That above quote from Edmunds senior analyst Ivan Drury is one of the last sentences in a news release accompanying the company’s latest Used Vehicle Market Report.

But it might be the most apt way to describe what’s happening in the pre-owned market, particularly the vehicle makeup, which is getting rapidly younger and more expensive. 

There will likely be less than 6 million trade-ins (which average 6 years in age) for the first time in five years, while off-lease volumes are expected to break records, according to Edmunds.

The average age on the 11.6 million used cars that franchised dealers sold last year was an all-time low of 4.1 years, according to Edmunds. Vehicles ages 3 and under represented nearly two-fifths (58 percent) of franchised dealer used-car sales last year, with off-lease cars driving this push.

Average used transaction prices were at $19,189, an all-time high.

“While low interest rates and consistent values are making it possible for the market to absorb these newer, more expensive off-lease vehicles, demand for older, less expensive used vehicles hasn’t waned,” Drury said. “Fewer older vehicles available puts sellers at an advantage, particularly those looking to sell vehicles that are in high demand like trucks and SUVs.”

The report also points out that nearly every segment of 8- to 15-year-old vehicles had higher value retention last year.  All told, it was a year for “dramatic change.”

“Record 2016 transaction prices reflected a used market that’s undergoing dramatic change. Growing numbers of 3-year-old off-lease vehicles, more 1- to 2-year-old rental returns and a consistent flow of near-new trade-ins made a big impact,” Edmunds said in its report. “A record-high 58 percent of the used vehicles sold at franchise dealerships were 3 years old or newer.”

Where does it go from here? Well, consider that lease originations climbed 10.6 percent in 2014, were close to 4 million in 2015, were well past 4 million in 2016 and are expected to reach 4.1 million this year.

And off-rental vehicles — which  “consistently feed the near-new category,” Edmunds says — should help the push towards a younger used-vehicle fleet, as well. 

Edmunds said that with rental companies upping purchases in recent years, 1- and 2-year-old off-rental cars in the used market should continue to have a strong presence in the market. 

Here's one thing to keep in mind about a younger used-vehicle fleet, though: incentives on the new-car side can throw a wrench into the mix. 

“The drop in average vehicle age led to higher prices in nearly all categories,” Edmunds said in the report.  “While newer used vehicles have fewer miles and less wear, there is a downside. Their value (and demand) can be lowered significantly if manufacturers offer big incentives on similar new vehicles.”

And if you're looking for an encouraging sign from the report, here's one: On a year-over-year basis, off-lease volume was up as much as 50,000-plus units in some segments last year, yet overall prices were steady with 2015. 

“From 2013 to 2014, lease volume increased 10.6 percent — partially driven by demand for popular vehicle categories, including compact crossovers, large SUVs and large trucks,” the report said.  “We expect this to keep transaction prices higher into 2017.”

Today's top headlines