Off-Lease Vehicles Are Flooding Lots, so Where's the Drop in Used Car Prices?

Steph Willems
by Steph Willems
off lease vehicles are flooding lots so where s the drop in used car prices

One- to three-year-old-vehicles are pouring back onto dealer lots, but the predicted drop in used vehicle prices hasn’t happened yet.

Consumer choices (meaning: trucks, trucks, trucks) and the high value of returning vehicles are keeping used prices near record levels, but analysts still expect a drop later this year, Automotive News reports.

The Manheim Used Vehicle Value Index rose for the fourth straight month in July, coming to within a half point from its highest level ever, recorded in 2011.

The reasons for this are many. Trucks and SUVs depreciate less than sedans, and this has pushed overall used vehicle prices higher. The relative health of the U.S. economy and the industry’s updated used vehicle selling practices also helped lower used vehicle depreciation.

Eventually, the tide has to turn, and forecasters expect the growing glut of off-lease vehicles to help it. 3.1 million off-lease vehicles will hit the market in 2016, up from 2.3 million last year. That number is expected to rise to 3.8 million by 2018.

Jonathan Banks, executive analyst at NADA Used Car Guide, told Automotive News that dealers “look at what will the market bear, and they price accordingly.” He expects a decline in used vehicle prices later this year.

Flattening new vehicle sales, as well as boosted incentives on new cars, should help the overall used vehicle market decline in value. The overall drop won’t be huge — current predictions point to a decline of five percent or less. That’s already happened in some segments, with subcompact vehicle recording a 20 percent drop in resale value since the start of the year.

[Image: Faris/ Flickr]

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  • Felix Hoenikker Felix Hoenikker on Aug 22, 2016

    Used car prices are in bubble territory. The problem with bubbles is that they always last longer and rise higher than expected. But they always pop, and when they do the prices always return to pre-bubble levels.

    • Hreardon Hreardon on Aug 22, 2016

      Automobiles aren't the same as housing. I suspect that we'll see a more gradual drop in used vehicle prices than others are suspecting, especially if there are expanded markets for export, etc. Unlike houses, vehicles fall apart on a fairly predictable timeline that varies based on use: an F-150 used daily on a construction site isn't going to last as long as Mr. Suburban dad who commutes to work in it. Additionally, most vehicles today have better fuel economy and are without a doubt, better built (on the aggregate) than ten years ago. Combine that with low gas prices that will likely remain within a low-moderate range for the foreseeable future and I think we're going to see a slower deflation of this bubble than some commentators here imagine. History and data shows that people will make their car payments before their mortgage payments, so repos should remain, as a percentage, low. Granted, we're bringing in a lot more subprime but so long as jobs are a available this won't be too much of a problem. We've got natural disasters, accidents, new export markets, heck, even VW diesels etc. All of these are unpredictable and can help nudge the market in one way or the other. It is not a given that we will see a collapse in prices. A slow deflation is more likely (and preferred, for obvious reasons).

  • NoGoYo NoGoYo on Aug 22, 2016

    Still waiting on prices of old junk to come down...the T-Bird isn't long for this world with its ever-increasing oil consumption but my car budget's tighter than ever. Yet I go on Craigslist and everything for $1000 or less is stuff I'd be insane to buy, like super ratty Maximas and half-dead Corollas.

    • See 8 previous
    • 28-Cars-Later 28-Cars-Later on Aug 22, 2016

      @NoGoYo Ryouku was dealing in those for awhile, I think he bought and sold four in a year. Trouble of course is he's somewhere in Missouri.

  • Burgersandbeer Burgersandbeer on Aug 22, 2016

    "...the industry’s updated used vehicle selling practices also helped lower used vehicle depreciation..." What does this mean?

    • Luke42 Luke42 on Aug 24, 2016

      +1, this seems worthy of a full story on TTAC!

  • Big Al from Oz Big Al from Oz on Aug 22, 2016

    When these lease vehicles hit the Car Yards it will slow the US new vehicle market quite a bit. I'd say it will impact new vehicle manufacture. I wonder if some creative finance companies will find a way to keep the current "owners" of lease vehicles from walking away?

    • Adam Tonge Adam Tonge on Aug 22, 2016

      They won't need to find a way because those lease "owners" will just get into another lease.