Will manufacturers continue to jack up new vehicle prices to rental fleets? When will the used vehicle market stabilize? How will the jittery economy affect both markets?
If you knew the answers to these questions you should be in Vegas. Nonetheless, there are experts that study the new and used vehicle markets to prognosticate on the future of car rental for us.
ARN recently spoke with Tom Kontos for an updated analysis of conditions affecting the auto rental industry. Kontos is executive vice president of analytical services and customer strategies for Adesa as well as a frequent speaker at the Car Rental Show, among many other automotive industry events. For Adesa he produces Pulse, a periodic review of key micro- and macroeconomic indicators relevant to the vehicle remarketing industry and the auto industry in general.
Demand for Used Vehicles Strengthens
The growth in off-lease volumes is among the factors that have depressed used vehicle prices this year. However, a much more visible factor has been the dramatic decline in full-size SUV and pickup truck prices (a virtual “boycott” says Kontos) in May and June as gas prices reached the $4.00 level.
High gas prices, and the related consumer shift towards smaller vehicles, have also been responsible for the major increases in average prices of compact cars during this same period, Kontos says. With gasoline prices abating, this impact is lessening.
Adesa’s auction data shows that overall retail demand for used vehicles, which has been weakening since sales peaked in 2005, has begun to recover gradually during the second half of 2008. However, any continuation of the decreased availability of credit due to the most recent financial crisis could further limit demand for wholesale units. Greater difficulty and cost in obtaining floor plan financing may limit dealers’ ability to stock up on used vehicles purchased at wholesale, Kontos says.
Wholesale Truck and SUV Prices Stabilize
As retail demand picks up, wholesale auction prices, even for full-size SUVs and pickups, have stabilized. Kontos points out that wholesale year-over-year truck and SUV prices were down 7.4 percent in June, 4.8 percent in July and 2.2 percent in August, a trend toward a breakeven point year over year.
“I believe the market was overcorrecting for May and June and now it appears to be more accurately reflecting long-term demand for SUVs and pickups,” Kontos says. “That’s helping stabilize the wholesale market.”
“My expectation is that as we approach the end of the year we’ll see year-over-year prices flat with prior year, or even experience a modest increase,” Kontos says. “As we go into 2009 I expect that to continue.”