Used Car Market Bracing for Off-Lease Tidal Wave

Courtesy of Edmunds.
Courtesy of Edmunds.

A record number of newer model year off-lease vehicles returning to dealer lots this year will be putting significant upward pressure on the late-model used market, according to the February 2017 Edmunds Used Vehicle Market Report.

Along with the expected influx of newer model year off-lease vehicles, less people are expected to trade-in a car during a new car purchase, further adding to the upward pressure on the late-model used market, the firm added.

In 2016, approximately 45% of car buyers traded in a vehicle during their new car purchase. In 2017, that number is expected to drop to 43%, which could result in the number of trade-ins in 2017 falling below 6 million, which hasn't occurred since 2012.

"While low interest rates and consistent values are making it possible for the market to absorb these newer, more expensive off-lease vehicles, demand for older, less expensive used vehicles hasn't waned," said Ivan Drury, an Edmunds senior analyst. "Fewer older vehicles available puts sellers at an advantage, particularly those looking to sell vehicles that are in high demand like trucks and SUVs."

In 2016, approximately 38.5 million used vehicles were sold, an increase of 0.6% from 2015. Franchise used sales amounted to approximately 11.6 million, an increase of 1.5% despite fewer trade-ins on new vehicle sales, according to the firm. And, of those franchised used vehicle sales, 58% were used vehicles that were three years old or newer, the firm added.

Additionally, due to a rise in leasing, the average age of a used vehicle sold by a franchise dealer in 2016 came in at a record-low 4.1 years old. The average vehicle transaction price for the used segment also saw a record in 2016, a record-high of $19,189.

To find this data, Edmunds analysts looked at lease rates from 2014 to get a rough estimate of how many vehicles should be expected to return to dealers in 2017. Lease volume was 10.6% higher in 2014 compared to 2013. And, since lease volumes also saw year-over-year growth in 2015 and 2016, newer-model lease returns are expected to rise for the next couple of years. And, as a result, used vehicle ages are expected to continue to get younger — and conversely, the availability of late-model used cars is expected to continue to decline — for the foreseeable future, according to Edmunds data.  

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