Used-car prices are expected to fall more than 8 percent over the next three years, according to an analysis released last week by RVI Group.
The firm attributes the projected 8.2-percent drop in real used-vehicle prices (i.e. residual values) to growth in three key areas: supply, competition and incentive spending.
“RVI forecasts an increase in leasing through 2018 and a growing supply of used vehicles in the market through 2019,” the firm said in a summary of the latest RVI Risk Outlook report.
“In particular, the growth in lease penetration will contribute to the supply of used vehicles as off-leased vehicles will begin to enter the market. In addition, we expect growing competition in the new vehicle market,” it added. “The level of incentive spending will increase due to these changing dynamics in the auto industry.”
To provide a sense of just how strong off-lease supply has become, consider the data shown in RVI’s lease supply index, which it uses to measure off-lease supply.
The index reading in February was up 16 percent year-over-year, and it’s expected to continue climbing, RVI said. That’s driven by how much leasing has jumped in the past two years. Citing Polk data, RVI points out that leases comprised 21.5 percent of all new-vehicle sales in 2015, including a 22.4-percent penetration rate in the fourth quarter.
It was the early 2000s the last time lease rates were that strong, RVI said, showing data that leases have trended upward since 2009.