USED MARKET UPDATE
As expected, used vehicle depreciation slowed modestly in June compared to May’s more rapid pace. Prices of used vehicles up to eight years in age fell by 2.5% on a monthly basis in June, or more than a half-percentage point less than the 3.2% drop recorded a month earlier.
While May’s fall was among the worst recorded for the month since 1995, June’s drop wasn’t quite as unusual. As a result, NADA Used Car Guide’s seasonally adjusted used vehicle price index was little changed for the month — falling by 0.2% relative to May — to 123.7.
With the first half of the year now behind us, one could say used vehicle prices have held up well despite mounting pressure from the new vehicle market and rise in supply. After all, NADA UCG’s index slipped by just 0.6% over the first half of 2015 compared to the all-time high reached over the same period in 2014. In addition, depreciation year-to-date (YTD) stands at 9% relative to all of 2014, which is only moderately higher than the 7.2% rate recorded last year and less than the nearly 10% YTD fall logged in 2013.
Digging a bit deeper, we see the year’s steady performance is a result of strong truck prices compensating for weak car prices.
Starting with cars, subcompact, compact and mid-size car prices have been among the softest all year. This is due in large part to intense new market competition, both within their respective segments and from high demand crossover utilities (lower gasoline prices aren’t helping either). For example, new subcompact, compact, and mid-size car incentives were up by a combined 10% through May, and the average spent per unit for the trio is similar to what’s been spent on luxury compact and mid-size utilities — vehicles costing thousands of dollars more.
The downward pressure has taken its toll on used prices for the group. Compact and mid-size car prices fell by nearly 3% apiece on a monthly basis in June, and prices for the pair YTD are on average 11% lower than in 2014. This compares to depreciation of 7% over the same period last year. Subcompact cars have performed even worse. Prices for the smallest car segment plunged by an average of nearly 4% in both May and June to bring YTD depreciation to 12%, which is 4 percentage points worse than last year’s mid-year figure.
By comparison, prices for used trucks and utilities have remained strong.
With prices declining by 2.1%, compact utility prices bounced back in June from May’s 3.3% fall. Depreciation for the group YTD stands at 7%, which is just slightly worse than last year’s 6% figure. In June, mid-size and large utility prices fell by averages of 2.2% and 1%, respectively, which brought YTD depreciation to 6% — essentially unchanged from 2014.
Down 1.8%, mid-size van movement was fairly typical for June; however, the 10% drop in value YTD is two points higher than last year’s 8% figure.
Large pickups continue to be the market’s standout performer. Large pickup prices haven’t fallen by more than 2.5% on a monthly basis in more than five years, which is a threshold passed by compact and mid-size cars more than a dozen times. Large pickup prices dipped by 0.5% in June to bring YTD depreciation to just 4% — an industry low.
With declines ranging from 1.5% to just over 2%, overall luxury segment losses were less substantial than what occurred in both May and last June. Even so, YTD depreciation for luxury cars is among the highest in the industry. Luxury compact car prices are down by 11%, while luxury mid-size and large car prices are off by 13% and 15%, respectively. As for luxury utilities, prices of compact and mid-size luxury utilities are down by respective averages of 8% and 10% so far this year.
On a like-age basis, we continue to see trucks and SUVs outperforming their car counterparts. Through the first half of 2015, large pickup prices were 7.3% higher than the same period last year. Other strong performers include the mid-size utility and large SUV segments, whose prices were 4.1% and 3.1% higher than last year, respectively. Subcompact and compact car prices were 1.7% and 6.9% lower than last year, respectively. On the luxury side of the market, compact and mid-size SUV prices were around 1.0% higher than last year, however compact, mid-size and large car prices were down between 0.6% – 2.9%.
AUCTION VOLUME TRENDS
Auction volume of models up to eight years old reached nearly 317,000 units in June, up a slight 1% from May’s total. The month pushed YTD volume to a total of 2.07 million units, good for a 7% increase over 2014’s six month tally.
The ongoing sell down of rental program units led to a 9% drop in 2014 model year volume. Volume for the model year reached 51,600 units in June, which represents a 26% drop from the 70,000 unit peak reached back in March.
Volume for the 2015 model year continued to increase in June, rising by 44% from May to a total of 17,400 units. Supply for the lease-heavy 2012 and mixed lease/rental risk 2013 model years was essentially unchanged at 59,000 and 58,000 units, respectively.
Likely reflecting an increase in trade-ins stemming from May’s strong new sales performance, auction volume for older 2007 – 2010 model years increased for the first time since March, rising by an average of 2% to a total of 106,000.
JULY USED VEHICLE PRICE FORECAST
NADA Used Car Guide’s forecast for July places prices of vehicles up to eight years in age 2% – 2.5% lower than in June. Moving forward, prices are expected to drop by 2.5% or more in August, with depreciation continuing to rise through October as the market heads into what is typically the softest part of the year.
On an index basis, NADA UCG expects used vehicle prices to decline by 2% over the second half of 2015 relative to levels recorded YTD. If things end up as we expect, the year would finish with prices 1% lower than in 2014.
Depreciation is expected to reach 14% for the year, which would be slightly worse than 2014’s 13% figure. Sticking to recent trends, subcompact and luxury car prices should be most depressed, with depreciation reaching 18% – 20% by year’s end (again, relative to all of 2014). We anticipate compact car, mid-size car and mid-size van depreciation will reach 15% – 16%. Compact utility, mid-size utility, and large SUV losses are expected to range from 10% – 12%, while large pickups should perform best with annual depreciation checking in below 10%.