Used Prices Predicted to Drop 3% in May

McLEAN, Va. - 

Wholesale prices remained strong in April — taking a bit longer to turn down from tax-season highs than in previous years — but price relief for dealers and buyers in the lanes is in sight.

According to NADA’s latest Guidelines report, seasonality and a spike in used supply will serve to push wholesale prices down by an average of 3 percent in May.

The market may be making up for April’s price strength. In fact, the predicted level of softening is roughly 1 percentage point more than the average May decline from 2011, 2012 and 2013.

This decline is expected after a month that showed little movement off seasonal highs.

NADA's seasonally adjusted used-vehicle price index was little changed in April, sitting at 125.8, which ties with March as the highest figure the index has ever reached.

In March, auction prices rose by 3.7 percent, and the average price of units up to 8 years in age fell by 1.1 percent in April.  

"No longer influenced by harsh winter weather, wholesale activity returned to normal in April," said Jonathan Banks, executive automotive analyst of NADA Used Car Guide. "The onset of seasonal softness typically observed at the start of the second quarter every year slowly materialized as the month progressed."

According to the Guidelines report, price movement last month was in line with NADA's expectations as prices dropped the most for the segments that experienced the biggest increases in March.

For example, after spiking by an average of 4 percent in March, prices for midsize cars, utilities and vans fell by an average of 1.3 percent in April. Compact utility prices experienced a similar trend, with prices dropping by 1.2 percent. And compact car prices fell by 0.8 percent.

Another interesting note was the reversal of a strong price retention trend seen among the large pickups.

According to NADA data, large pickups saw prices fall by 1.3 percent last month, which was the third largest recorded drop in the past two years.

Moving forward into May, NADA expects depreciation across segments will be fairly consistent, with prices for the majority expected to drop near the 3 percent market average.

NADA pointed out a few exceptions to this trend could be found among large pickups, which are expected to see prices drop closer to 2 percent, and for midsize cars, which may see an even bigger drop closer to 3.5 percent.

"Given that energy prices have remained stable, consumer sentiment is trending up and job growth rebounded in April, we forecast that price movement will follow a familiar seasonal pattern through the summer," said Banks.

Looking into summer, NADA forecasts auction prices will drop between 2 percent and 2.5 percent in June, and 1 percent to 1.5 percent in July, before picking up in August.

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