3 Reasons for Caution in Used Vehicles As Spring Approaches

By Dale Pollak

Last week I men­tioned deal­ers who expressed less opti­mism than their peers about a strong used vehi­cle mar­ket this com­ing spring. These deal­ers were say­ing things like:

“I’m tak­ing every used vehi­cle deal I can. I’m not hold­ing out for gross because I believe the sup­ply will be there to replace it. I’m try­ing to get out of what I bought at the high val­ues today.”

“The thresh­olds of high-dol­lar vehi­cles, those above $18,000, will be high­ly volatile. I’m run­ning from late mod­el cars like those with high mar­ket days sup­ply.”

I took the com­ments as a cause for inves­ti­ga­tion. I ques­tioned indus­try ana­lysts and oth­er deal­ers, ask­ing what they thought about the spring sell­ing sea­son.

The end result: The cau­tion these deal­ers expressed about this year’s spring-to-ear­ly-sum­mer sell­ing sea­son appear fair­ly well-found­ed. My queries affirm the three mar­ket forces that deal­ers believe will cre­ate inven­to­ry acqui­si­tion and retail­ing chal­lenges in the com­ing weeks and months:

1. Increased Used Vehi­cle Sup­plies: Alec Gutier­rez, senior mar­ket ana­lyst for Kel­ley Blue Book’s KBB.com, thinks there could be as many as 300,000 addi­tion­al off-lease cars enter­ing the mar­ket this year—even more if lease return rates con­tin­ue to gath­er more steam. The influx stems from an esti­mat­ed 2.7 mil­lion short­er-term lease deals writ­ten in 2009 and 2010 (rough­ly 1 mil­lion and 1.7 mil­lion, respec­tive­ly).

Gutier­rez agrees with deal­ers that the impact from this influx of used vehi­cles could be felt after many have bulked up their inven­to­ries in antic­i­pa­tion of spring sales.

2. Soft­en­ing Used Vehi­cle Val­ues: The lease return- and rental fleet-fueled influx of whole­sale used vehi­cles will like­ly trig­ger a “cor­rec­tion” in whole­sale val­ues. The key ques­tions are “how big will the cor­rec­tion be?” and “when might it occur?”

3. Com­pe­ti­tion from New Vehi­cles: The pric­ing par­i­ty Gutier­rez notes explains why the Mid­west deal­er is “run­ning away from” late mod­el cars unless their mar­ket days sup­ply and cost to mar­ket met­rics pen­cil out.

Tak­en togeth­er, these emerg­ing mar­ket dynam­ics are prompt­ing some deal­ers to act now and adjust their used vehi­cle inven­to­ry man­age­ment and retail­ing strate­gies.

Dale Pol­lak, founder of vAu­to, Inc, can be reached at [email protected] or vis­it him on his blog at Dale Pollak.com.




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