Along with offering its take on what Hurricane Sandy did to a typical wholesale price slowdown during the fourth quarter, Kelley Blue Book put out its projections for where prices might go during the first quarter of next year.

KBB senior market analyst Alec Gutierrez — one of the many experts on hand at Used Car Week — said the first quarter usually brings a surge in transaction prices at auction as dealers stock inventory in preparation for the spring selling season.

For the opening stanza of 2013, Kelley Blue Book forecasts an increase in wholesale values will be muted by an increase in supply that is expected to arrive at auction early next year.

“Our forecast places used-car gains in the neighborhood of 0 to 1 percent, which is well below the 2.5 percent gain that occurred during the first quarter of this year,” Gutierrez said in the November Blue Book Market Report.

“Similar to the first quarter of 2011, values were driven up this year by a spike in fuel prices approaching $4 per gallon,” he continued. “Assuming fuel prices remain near $3.50 per gallon in Q1 and supply increases as expected, Kelley Blue Book anticipates the market to remain relatively flat through the first quarter."

The increase in supply will be driven by a surge in lease returns that Kelley Blue Book believes could increase by as much 100,000 units year-over- year during the first quarter.

The firm also mentioned values of small cars and hybrids will potentially outperform overall expectations for the industry.

“Assuming fuel prices don’t spike beyond $3.75 per gallon in Q1, Kelley Blue Book expects values of small cars to increase 2 percent, which is beyond the overall industry average and below what occurred in 2011 and 2012, when fuel prices hit record highs in the early part of the year,” Gutierrez said.

“These vehicles may be especially popular among those impacted by the storm and seek fuel-efficient vehicles at an affordable price,” he added.

Although KBB’s forecast calls for relatively stable market in the early part of 2013, analysts acknowledged the industry could see the lingering effects of Hurricane Sandy drive values up further in the Northeast.

“As dealers continue to seek replacements for damaged inventory, Kelley Blue Book anticipates the Northeast region to outperform the rest of the nation,” Gutierrez said. “It remains unclear at this point just how long this Northeast premium will last, but Kelley Blue Book analysts will continue to monitor the data and report any significant changes as they arise.”

Projections like Gutierrez made comprised much of the talk going on in Scottsdale, Ariz., at Used Car Week. For more of Auto Remarketing’s coverage of the event, including photo galleries, click here.

Used-Car Values Could Have Temporary Boost Due to Sandy

KBB indicated used-vehicle values were relatively flat in October with a scant 1.5 percent drop overall, putting them down only 1 percent year-over-year.

Prior to the arrival of Sandy, Gutierrez said auction activity had settled into a typical fourth quarter seasonal slowdown.
Although Kelley Blue Book hasn’t seen a significant surge in wholesale values just yet, it anticipates values to creep up as inventory shifts to the East Coast to assist with the ongoing recovery efforts.

“While information coming out of the storm’s affected regions remains murky, Kelley Blue Book anticipates vehicles will need to be made available to satisfy consumer demand, as well as fleets and businesses that need to replace damaged and destroyed cars,” Gutierrez said.

Since the storm hit so late in the year, KBB believes increased demand on the East Coast will only mute the market’s typical decline through this time period. Rather than the expected 1 to 2 percent decline per month during the fourth quarter, Kelley Blue Book expects values to remain relatively flat nationally.

“However, on the East Coast, strong demand from dealers looking to replace damaged inventory will drive values higher in the short term,” Gutierrez said. “Values of older used vehicles may see an especially strong jump, as shoppers with bad credit that need a replacement vehicle seek the most affordable models available for sale.

“Demand from impacted franchised dealers likely will be particularly strong since they will need to replace both new and used inventory as quickly as possible,” he continued. “Since it may take six to eight weeks for franchised dealers to receive additional new-vehicle allocation, they will supplement this lost new-car inventory with additional used vehicles, raising values in the short term.”

By looking back at Hurricane Katrina’s impact on used-vehicles values in 2005, analysts obtained a “reasonable” estimate of the level of price appreciation to be seen at auction this year.

When Hurricane Katrina hit, Kelley Blue Book Values increased more than 2 to 3 percent in the affected area from the time the storm hit in August until year-end,” Gutierrez said. “This year, Kelley Blue Book believes that while we may see some price appreciation on the East Coast, from a national perspective, values will remain relatively flat.

“One factor that distinguishes Sandy from Hurricane Katrina and its expected impact on the wholesale market is the location of the storm,” he continued. “Since Sandy devastated so many high-traffic ports along the East Coast, the industry could see a temporary halt to those buyers that export vehicles for sale across the Atlantic.

“Many dealers believe that exporters drive auction values higher since their customers in Europe, Russia and China are willing to pay significant premiums for certain vehicles,” Gutierrez went on to say. “With exporters likely staying out of the market for a short period of time, this could help to mitigate the potential price appreciation related to Hurricane Sandy.”