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Jonathan Banks, executive analyst for NADA Used Car Guide
An excess of inventory and other factors will lead to a sharp drop in used vehicle pricing in the United States in 2016, according to forecasts from Jonathan Banks, executive analyst for NADA Used Car Guide, a division of J.D. Power and Associates.
Banks made the comments at a press conference at the opening of the 2016 NADA Convention and Expo in Las Vegas where he predicted a five to six per cent decline in used prices for 2016. This marks the first significant decline in used vehicle prices since 2008.
There are several factors contributing to that, he says, including an abundant supply of used vehicles, including loads of passenger cars hitting the market at a time when consumers are favouring trucks and SUVs, credit conditions, and the continued growth in new vehicle incentives offered by the OEMs.
Banks expects 800,000 vehicles to be coming off their leases in 2016, and most of that will be compact and mid-size cars. The late model supply is expected to hit its highest level since 2008, and that will drag down used vehicle prices for 2016.
But Banks said 2015 was a phenomenal year, and he expects 2016 to be another solid year. “The economy is doing great, we are seeing wage growth,” says Banks.
Banks singled out incentives as something to watch closely, nothing that they reached about $2,900 a unit in 2015, and have reached 9.6 per cent of their MSRP. “A lot of analysts say 10 per cent is a dangerous number,” says Banks. “Are we at levels of incentives that are unhealthy?”
The explosion in leasing and other factors has also resulted in more vehicle trade-ins that had negative equity, which is another concern to keep a close eye on.
Banks also touched on the implication of the diesel emissions scandal and its impact on the VW brand. While prices for Jetta and Passat diesels have plummeted 20 per cent versus 2015 prices, the scandal doesn’t appear to have yet had any overall negative impact on the VW brand. “But the demand for diesels has dramatically declined,” says Banks.
