Guidelines from NADA UCG — July 2015

NADA Used Car Guide

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%.

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