Decline in used-vehicle prices expected to last several more years

used carsPrestige luxury cars, premium sporty cars and luxury cars were used-vehicle price loss leaders in July, but the overall used-vehicle market apparently is closer to the beginning than to the end of price declines expected to last through 2019.

With the biggest drop seen in the past 12 months, the top 10 car segments fell by an average of $86 during the last week of data in July, Auto Remarketing reported.

The “three segments trending softer than most in the dollar levels” cited by Ricky Beggs of Black Book in his weekly video analysis, with the single-week decline and the four-week average were: prestige luxury cars, $183 ($131 average), premium sporty cars, $184 ($121), and luxury cars, $110 ($87). Meanwhile, the truck segment has done better with a one-week decline of $45 and four-week average of $49.

“The level of declining amount continues to get larger week over week,” Beggs said.

“With strong current sales and more favorable economic conditions, the supply of used cars in the market is expected to increase steadily through 2019,” RVI Group’s latest Risk Outlook said.

The overall price decline is expected to be 10 percent, according to the story in Auto Remarketing.

Two major factors are expected to drive used-vehicle price declines the remainder of this year and for several years to come: a growing supply of used vehicles and price pressure exerted by increasing competition for new-car sales, suggested the analysis by RVI, a provider of residual value insurance.

“A wave of newer vehicles from trade-ins has started to flood the secondhand market and will gradually bring resale values back down to pre-recession levels,” Auto Remarketing reported in another article, “New-car market tied to lowering used prices.”

The effect of new-vehicle sales on used prices reportedly reappeared for the first time since 2008.

Meanwhile, residual values also are expected to affect used-car prices, Auto Remarketing reported. “According to [consulting firm] ALG, by 2017 the average new vehicle will retain 49.4 percent of its value after three years, compared to the 54.6 percent retention recorded for vehicles through June 2014.”

“Used units will follow suit as ALG predicts growing supply will put the residual average back at 46 percent – the pre-recession rate – by 2019,” according to Auto Remarketing.

“The lower residual values will create a greater gulf between used- and new-vehicle prices, which could steer more consumers to purchase used vehicles,” ALG’s Larry Dominique told Auto Remarketing. “Consequently, we expect automakers to increase new-car incentives to keep up current sales space.”

The results seem to provide good news for consumers but challenges for dealers facing price pressure.

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