Used-market could decline over next few years
Trade-ins provide the primary supply of used vehicles for dealerships to sell. But off-lease and off-fleet vehicles are major second- ary sources of used inventory. It’s no secret that both new-vehicle leases and fleet sales declined dramatically over the past couple years and that fact will have equally dramatic effects on the supply of used vehicles, with potentially significant impacts on prices, over the next few years.
According to data compiled by DesRosiers Automotive Consultants, volumes of off-fleet and off-lease vehicles have already begun to decline. They were down about 50,000 units in 2010 and are forecast to fall another 80,000 units in 2011. But it’s 2012 and 2013 when the greatest impact is expected. DesRosiers predicts declines of 230,000 and 150,000 units on the used-vehicle supply side for those two years, respectively.
These declines won’t all result from the fleet and lease markets. Total new-vehicle sales began to decline in late 2007 and contin- ued below historic levels through 2008 and 2009. That means there will be fewer late-model trade-ins.
The greatest impact, however, will result from the collapse of the lease market, which began in 2008, in parallel with the financial crisis, as leasing firms became unable to securitize leases. Lease penetration for new-vehicle sales in Canada peaked at 45.0 percent in 2005 and remained above 40 percent through 2006 and 2007. But it fell to 24.0 percent in 2008 and bottomed out at just 7.1 per- cent in 2009.
Fleet sales also declined rapidly during that period so fleet vol- umes, which have traditionally been the most stable part of the light-vehicle market, according to DesRosiers, were also affected.
The impact of that fleet decline was the first to be felt in terms of used-vehicle supply, as fleet vehicles are typically turned over more rapidly than leased or pur- chased vehicles – sometimes even within a year. Leases more typi- cally last for three or four years and trade-ins on new vehicles are typically five to ten years old.
What does it all mean?
If the scenario plays out accord- ing to form, that decline on the supply should result in higher used-vehicle prices over the next few years and that, in turn, will probably cause residual values for new vehicles to rise. Higher used- vehicle prices also result in higher trade-in values, which make it easier for existing vehicle owners to buy new vehicles, further fueling that trend.
