Rising vehicle prices tighten pre-owned inventory

Rising vehicle prices tighten pre-owned inventory

- in Automotive

Smoke: Equityis improving.

With vehicle prices on the rise, more consumers are buying their cars and trucks when their leases run out. And higher used-vehicle prices in particular are prompting more dealers to keep the lease-return vehicles that are turned in to their lots, Cox Automotive estimates.

The trend could be leading to fewer pre-owned vehicles for dealers to choose from.

Cox estimates that in 2016, when the number of off-lease vehicles began to flow more heavily back to the market, about 65 percent of them went to wholesale auctions. That has fallen to an estimated 60 percent this year, Cox says, and is headed toward 55 percent in the coming years. Cox said its estimate is based on confidential information from finance companies. The balance of off-lease vehicles is being purchased by the grounding dealership or consumers exiting their lease, who face dramatically higher prices to lease again or buy the latest version of their vehicle.

Consumers’ equity positions are improving, Cox Chief Economist Jonathan Smoke said, and most vehicles at lease maturity now are estimated to have a market value higher than their contract value at lease end.

“Correspondingly, fewer maturities are making their way to the auction,” Smoke said. “In addition, dealers have not needed to consign as many vehicles because of strong retail demand.”

Some dealers say the changes are limiting the number of off-lease vehicles reaching the wholesale market, while others have only noticed the high prices used cars and trucks are commanding.

“The problem with used cars is getting enough of them,” Charlie Gilchrist, president of Gilchrist Automotive in northern Texas, told Automotive News this month. Gilchrist will be the 2019 chairman of the National Automobile Dealers Association.

Wes Lutz, current NADA chairman and president of Extreme Dodge-Chrysler-Jeep-Ram in Jackson, Mich., made a similar observation, saying he wonders where the supposed deluge of off-lease vehicles is.

According to Cox, that flow of off-lease vehicles has not yet peaked but is decelerating. It’s expected to peak in 2019, according to the company’s “Wholesale Market Insights” report for the first nine months of the year.

“Independent dealers again reported that used-vehicle inventory was declining in the third quarter, and for the first time, our total surveyed dealers indicated that used-vehicle inventory levels are declining,” Smoke said in a conference call this month to discuss the report. “Talk of an off-lease tsunami is so 2016.”

Others have indicated that any strain on the wholesale channel has not yet arrived.

“I think it depends,” said Rinaldi Halim, managing partner of Downey Nissan, in California. “There’s plenty of inventory — you just got to pay more money for it.”

Tom Kontos, executive vice president and chief economist at ADESA Analytical Services, said that although a big contributor to volume growth is off-lease vehicles, there is a tendency by dealers to buy upstream. Still, net wholesale volumes are up, he said.

“But that increase isn’t as great” as would be expected, Kontos said.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

You may also like

State Pension: Can State Pension be backdated?

STATE PENSION payments are available to many Britons