After seeing considerable dips in prices in the past few months, adjustment rates in the lanes are slowing down, says Black Book’s Ricky Beggs, and Hurricane Sandy may be behind the change.
Beggs told Auto Remarketing, “We didn’t have any more adjustments this week over last week that were increases, but we had fewer overall adjustments, and it is all being driven by a little more interest in vehicles out there … and the need to replace vehicles damaged by Hurricane Sandy.”
Specifically, according to the latest “Beggs on the Used Car Market” video report, the average segment change within the car models was a downward adjustment of $43, the smallest change since the $37 decline the week ending July 6.
And four car segment types declined $30 or less: entry midsize cars, compact cars, full-size cars and the entry-level cars.
Furthermore, for the first time since August, no car segment type saw a level of decline of -$100 or more, Beggs added.
The truck segments saw an average change of -$65 this past week, which is a slight improvement in depreciation and the smallest declining amount over the past three weeks.
And overall demand for vehicles seems to be picking up due to vehicle replacement activity in the wake of Hurricane Sandy.
In his video report, Beggs said there are a “couple of scenarios” that will work to replace vehicles with physical damage from the recent superstorm.
The Replacement Process & Tight Supply
First, there will be an increase in used values of many, but not all type vehicles, as a result of the increased demand, as used supply is still tight.
Interestingly, this replacement process may tell a very different story than what took place in 2005 after Hurricane Katrina.
“Tight supply is going to be the biggest issue now versus what we saw during Katrina back in 2005,” said Beggs.
He encouraged dealers to look at new-car sales volumes before these two storms: In the case of Hurricane sandy, the average number falls at about 12 million; for Katrina that number was a solid 16.5 million to 17 million, Beggs said.
What does this mean for dealers?
Beggs explained it means stores are going to have to “reach out a little bit further” when looking for replacement units.
“It isn’t going to just be felt along the Eastern half of the country – dealers will have to look for these units at auctions all over the country,” Beggs explained.
He also noted that today's “mature” online auction environment will make this process a lot easier than it was for dealers recovering from Hurricane Katrina.
“One thing that makes this possible and feasible to happen in the online auctions. You go back to 2005 (during Hurricane Katrina), we had some online business then, but the online business is much more mature and usable now than in 2005. It is easier to reach out and find specific vehicles now,” Beggs said.
Interestingly, Beggs also shared that with the “sophistication” of the current transportation market, dealers will find it easier to shop around the country than in recent years.
Also, the transportation companies are helping dealers remove damaged vehicles, as well.
But the question on the minds of many is how long will this surge in business from the vehicle replacement process last? Will it carry over into 2013?
“We are thinking it will last through all of December. And once we turn the calendar into January, we are looking to see that normal spring market that always gets a little more aggressive. But it may just be a smooth transition from December into January and February with those levels. But we may not see the traditional kick in January because of current high levels,” Beggs told Auto Remarketing.
Industry to ‘Police’ Flood-damaged Vehicles
Another “scenario” cited by Beggs that will work to replace vehicles with physical damage from the recent superstorm, is the industry's effort to “self- police” to protect consumers from purchasing a vehicle that has been adversely affected by flooding and other damage from the storm.
Beggs reiterated that no dealer wants to get caught with one of these cars and that the industry will “police” this issue to help ensure that this doesn’t happen.
But, of course, Beggs said, “Sure, there are going to be a few damaged units that fall through.”
To cut down on these cases, many vehicle history reporting companies are already reporting on vehicles that may have flood-related damage since they were in areas affected by the storm.
“It doesn’t mean they were damaged; it just means, ‘Hey, look a little closer at these cars,” Beggs said.