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After Historic Highs, a Used Car Value Reset

We’re off those historic used car value highs, but the sky is not falling. Why? Three words: supply, supply, supply.

Six months ago, the automotive world was tipped on its head. In a market already tight in supply, the industry had to process the aftereffects of the Japan earthquake and tsunami. Used cars were selling for near-new car prices as the Manheim Used Vehicle Value Index hit historical peaks month after month.

With such extraordinary events, it wasn’t easy to see the forest through the trees. And now there’s flooding in Thailand — but we’ll have to wait to fully process that one.

In a market reset, where are we since we last sat down on the subject? New car sales should hit 12.6 to 12.7 million units by year end. That’ll be about a million units more than 2010, a 10 percent improvement. That seems remarkable, especially in light of the spring supply disruptions, until you realize that the 2010 numbers were abysmal as we were still crawling out of the muck of the recession.

This year’s increase is on the back of retail sales, as cumulative fleet sales (commercial, rental, government) through September are up only 1.7 percent. Why? A few reasons, in talking to car dealers and fleet buyers and sellers: municipalities don’t have the budgets; companies aren’t adding to their sales forces; the construction industry is limping along; and rental fleets are comfortable with longer hold times. And — this is a good thing — cars are being built better than ever.

“There’s still a lot of value in a 100,000-mile car,” says Rick Nicoletti of Napleton Fleet Group.

It should also be noted that in 2010 fleets went on a buying spree coming out of the recession (total fleet sales up 22 percent over 2009) to replace ragged fleet, and comps couldn’t stay at that accelerated pace this year. While last year was more of a fleet market, this year’s emphasis is on retail.

The used car market had no choice but to come down off its late spring/early summer historic highs, and it did. Ricky Beggs, vice president and managing editor of Black Book, says values started dropping early this year, starting in the end of June.

“It was just the fact that prices have gotten so high, there had to be an adjustment,” he says. But there is no bubble bursting. We are still in the midst of the usual fall value deflation, but don’t worry, the bottom isn’t going to drop out the cars you’ll be selling.

Tom Kontos of Adesa reports some added downward pressure on used vehicle values during this fall’s defleeting period mostly as a result of the additional 283,644 units sold into rental fleets in 2010 versus 2009 coming into the wholesale market.

But this is mitigated, again, by lack of supply. The cars that weren’t bought in 2009 and 2010 aren’t turning into used cars, nor are the lease originations that didn’t happen during the OEM bankruptcies.

CONTINUED:  After Historic Highs, a Used Car Value Reset
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Author Bio

Chris Brown

Executive Editor

Chris is the executive editor of Business Fleet Magazine and Auto Rental News. He covers all aspects of the fleet world.

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