Used-Car Prices Fall for Third Straight Month, According to Car-Auction Company

CARS.COM — Used-car prices have fallen for the third straight month, according to auto-auction company Manheim’s benchmark Used Vehicle Value Index. That suggests used-car shoppers should find lower prices this spring. It would represent some long-awaited relief, given used-car prices have been high since the recession’s end.

Related: Used BMW Car Prices Slide in February

The index, which tracks wholesale used-car prices adjusted for mileage, mix and seasonal factors, fell to 122.5 in March. That’s down 1.6 percent from March 2015’s 124.5, and it’s the third straight monthly drop since December (125.7). In fact, Manheim says March was its lowest used-car index value in 17 months. Manheim’s index hasn’t been below 120 since September 2010.

Used-car prices should continue to ebb in the months ahead, said Tom Webb, Manheim’s chief economist. That’s because more used cars have flooded the market, many of them from new-car leases that shoppers return at the term’s end. Webb estimates around 2.5 million cars returned from leases in 2015, but that will grow to roughly 3.1 million in 2016, 3.6 million in 2017 and 4 million in 2018.

“Used-car supply is up and has been going up for a bit now,” said Joe Overby, an editor at Auto Remarketing, a trade publication for the used-car industry. “The spike in off-lease volume is really going to play a role this year.”

It’s easy to see why: After crashing in the recession leasing has roared back. Experian says that in the fourth quarter of 2015, a record-high 28.9 percent of new-car sales were leases. That’s up from 25.1 percent in the year-before quarter, and it’s way ahead of leasing rates in 2009 and 2010. As all those off-lease cars enter the market, they’ll drive used-car prices down.

“It is a supply issue — used-vehicle prices, I think by most people’s expectations, have been at a high and elevated level for a very extended period of time,” Webb said. The apparent relief is “certainly good from the consumer standpoint,” he added.

Overby noted that new-car incentives also push down used-car prices. Those incentives are climbing steadily: Autodata Corp. said the average new-car sale in March 2015 carried $3,110 in total incentives, up a significant $384 over March 2014. In January and February, average incentives were up $404 and $353 over their year-ago months, respectively.

“That tends to [put] pressure on used prices,” Overby said. “To compete with the incentive-driven lower new-car prices, they’d have to come down.”

Manheim said the average price of a car at auction, where dealers can bid on used vehicles, was down 7.3 percent from a year ago. Of note for used-car shoppers is Manheim’s analysis of wholesale prices for specific used-car segments in March:

• Compact-car prices fell 9.1 percent versus the year-ago month as consumers shift toward SUVs amid low gas prices. That appears to parallel a sales (not pricing) trend among new cars, where traditional non-luxury compact cars fell 11.5 percent in March sales.
• Midsize-car prices fell 1.7 percent. That roughly tracks with new-car sales, where non-luxury midsize cars fell 1.2 percent.
• Pickup-truck prices bucked the rest of the market, with prices up 7.4 percent. That could stem from continuing strength in the new-home construction market this year, which is a major contributor to truck sales.
• Van prices, including cargo vans, fell 2.4 percent. That’s a stark contrast to new minivans and cargo vans, which grew 39.4 percent and 27.2 percent in March sales, respectively. Much of that came from huge gains for outgoing models like the Dodge Grand Caravan and Chrysler Town & Country, which had as much as $3,000 in customer incentives last month, according to Automotive News. Deals like that on new vans may have siphoned off some demand for used models.
• Luxury-car prices fell 3.4 percent.
• SUV prices fell 2 percent, despite new SUV sales booming. But much of that boom comes from the red-hot subcompact SUV category, a relatively recent phenomenon. There won’t be a lot of used subcompact SUVs for years to come.