If you think the East Coast is hot right now, look at what’s happening in the used-car market. Especially in terms of prices.
One particular index measuring used-car prices is poised to reach its highest level in almost three years, the annual retail sales rate is approaching 40 million and dealers are showing optimism.
Granted, there could be some concern, specifically around supply.
Starting on the retail side, used-car sales this month are likely to remain steady with July’s figures, with the seasonally adjusted annualized rate actually seeing a nice bump.
That’s according to projections released Wednesday by Edmunds, which said the used-car retail market should once again reach 3.4 million sales for the month. The August used-car SAAR would then be 39.7 million, up from 39.5 million in July.
Following a consignor and wholesale event last week, Cox Automotive senior economist Charlie Chesbrough had this to say about the used-car market: “After talking to dealers at the 2018 IARA Summer Roundtable, it’s clear that the used-vehicle business is good right now.
“The market is looking strong for 2018, with dealers still optimistic for 2019 as well,” he said in emailed comments provided to Auto Remarketing.
“However, with concerns that affordability is changing, headwinds may be in sight down the road in 2019,” Chesbrough said. “Anticipation around tariff proposals and their impact on new and used vehicles have also resulted in some pull-ahead activity, as dealers try to position themselves for the future of the used-vehicle market.”
On the pricing side, August could end being the strongest month in three years for the Seasonally Adjusted Used Vehicle Price Index from J.D. Power Valuation Services.
In a blog post earlier this week, senior automotive analyst David Paris said August used-car prices have shown sequential gains through the first three weeks of the month. What’s more, they’re likely to be higher than first projected by month’s end.
Specifically, the current J.D. Power reading of 122.0 is 2.3 points higher than July’s, Paris said.
If this trend holds, August would represent the index’s highest mark since late 2015 and be the third straight monthly gain.
“The used-vehicle market really started showing its strength in the middle half of 2017, and there are no signs of it letting up. Most of the market’s lift in prices has been driven primarily by mainstream car growth, however, mainstream utility segments continue to show firmness as well,” Paris writes in the post.
“However, luxury car and SUV segments are not experiencing the same long-running positive trend as their mainstream counterparts due in part to higher incentive spend on the new side of the market,” he said.
“There are two primary factors behind why the used market continues to heat up: first dealers are placing more emphasis on used-vehicle operations, and second, vehicle affordability is becoming increasingly important to consumers.”
That’s not to say there are not some negative factors at play.
In fact, Chesbrough at Cox Automotive said one “glaring concern” is used-car supply, especially as the 10-year anniversary of the Great Recession looms.
And the concern is not about having too much; rather, it is about not having enough.
The tables, it would appear, have turned.
In his analysis, Chesbrough lists these as key impacts on used-car supply:
First, “During the heart of the recession (approximately 2008-2011) the industry lost out on millions of vehicle sales. This is coming back around and resulting in a big hole in supply today, requiring dealers to buy newer vehicles at much higher prices.”
Next, he said: “A strong economy has resulted in fewer repossessions.”
Lastly, “Residual values have been declining over the past couple of years,” Chesbrough said.
On the new-car side, supply is at its lowest point in two years, Edmunds said. Granted, this indicates some realignment of new-car inventory to better meet demand. However, Edmunds said, this is also indication of lower sales versus recent years.
“There are a lot of things working against the automotive market right now: Incentive spending is maxed out, interest rates are rising, and vehicle prices are reaching record highs,” said Jeremy Acevedo, manager of industry analysis at Edmunds, in a news release, referring to the new-car market.
“Add to that the uncertainty that comes with renegotiating NAFTA and tariff talks and it amounts to what could be a challenging back half of the year for automakers.”
In a data set going a bit further back, Experian shared some payment data for both new and used, pointing out that new- and used-vehicle monthly payments hit record highs during the second quarter, with the average new monthly payment increasing $20 year-over-year to $525, and the average used monthly payment increasing $13 over the same time period, reaching $378.