By Arlena Sawyers, Crain News Service
INDIANAPOLIS (Sept. 9, 2013) — An industrywide uptick in used-vehicle volume into 2014 will soften prices of those vehicles, forecasters and industry executives predict.
But car dealers will continue to enjoy strong gross profits and will benefit from a wider selection of vehicles, said Tom Kontos, executive vice president of customer strategies and analytics at ADESA Inc.
Through July, used-vehicle volume at the nation's auto auctions increased about 5 percent from the same period last year, said Mr. Kontos, while used-vehicle prices declined about 3 percent. Those trends are expected to continue, albeit gradually.
"I don't think either will accelerate much but I expect there to continue to be downward pressure on price," Mr. Kontos said last week during the National Auto Auction Association annual conference in Indianapolis. "Dealers can be more specific to the needs of their markets instead of just taking what is available."
Mr. Kontos and others based their predictions on data that show increases over the past three years in new-vehicle lease volume, new vehicles bought by rental-car companies and commercial fleet lease companies and more aggressive lending by financial institutions.
Data presented during a panel by Tom Webb, Manheim's chief economist, indicated further price easing is likely. But his presentation stated that "supply will not be excessive relative to demand."
Steve Kapusta, vice president of Ally Financial's SmartAuction online remarketing channel, expects more off-lease volume starting in the fourth quarter.
He predicted that used-vehicle prices "will soften, but won't fall" precipitously. Pent-up demand—demonstrated by the number of older vehicles on the road that need replacing—will help provide a "soft landing" for prices, Mr. Kapusta said.
"There's still a nice line of demand to replace 8-year-old, 10-year-old, 12-year-old cars on the road," Mr. Kapusta said.
Ricky Beggs, managing editor of Black Book, agreed that used-vehicle prices will not plunge, but said small cars and even entry-level mid-sized cars will experience the most price depreciation, because of rising competition in those segments.
But moderate sales of new pickups over the past two or three years has created a "more manageable volume" of used pickups. That, coupled with an increase in demand for pickups in general generated by an uptick in the construction and service industries will buoy prices of used pickups, Mr. Beggs said.
"What can you replace a pickup with?" he said. "As far as functionality is concerned, it's in its own class."
This report appeared on the website of Automotive News, a Detroit-based sister publication of Tire Business.