ALG, the benchmark for forecasting vehicle residual values, says a wave of newer vehicles will gradually bring resale values in line with prices before 2008’s economic downturn.
Due to poor sales years from 2008-2012 — as well as 2009’s “Cash for Clunkers” program that took nearly 700,000 vehicles off U.S. roads — used-vehicle supplies have been limited. However, ALG estimates that the June 2014 marked the lowest number of used vehicles available for sale.
“The continued strength of new car sales is increasing the availability of high-quality used cars as shoppers continue to trade in their old vehicles,” said Larry Dominique, president of ALG and executive vice president at TrueCar. “Additionally, because of the popularity of short 24- and 36-month leases, the drought of used-car supply is already starting to subside. As a result, we expect a steady decline in used-vehicle prices.”
By 2017, ALG forecasts the average new vehicle will retain 49.4% of its value after three years — in contrast to the 54.6% retention recorded for vehicles through June 2014. Additionally, ALG expects the growing supply of used vehicles should ease the industry back to a 46% residual average by 2019, the same as it was before 2008.
“The lower residual values will create a greater gulf between used and new vehicle prices, which could steer more consumers to purchase used vehicles,” said Dominique. “Consequently, we expect automakers to increase new car incentives to keep up their current sales pace.”
To learn more about the used-vehicle supply increase, check out ALG’s Industry Report.