Used-car prices to remain strong until 2016-17

Share

By Lawrence Papoff

Economic growth and the greater number of new models will mean more cars leased this year and in 2015, just don’t expect leasing activity to hit pre-recession levels any time soon.

The forecasting, courtesy of Rene Abdalah, V-P of RVI Group, included a fitting word about how that leasing inventory will affect used-prices.

“Leasing is not back to what it used to be. It’s hovering below 20 per cent or half of what is was prior to 2008. We are not sure it will increase dramatically,” Abdalah said.

“Because of stronger sales over the next two years, model years 2014 and 2015 will have a greater volume of leases.”

That translates to about 200,000 units this year and about 190,000 next year.

But don’t expect lease percentages and volumes to rise to pre-2008-09 levels, he cautioned.

The introduction of more redesigns this year should mean fewer fleet. And as retail sales improve, fleet volume will increase but the percentage of fleet sales will not.  

RVI Group is a supplier of residual value insurance, specialty insurance and analytical services for lessors and lenders, captive finance companies, credit unions and fleet management companies.

Abdalah predicted what the future holds for used-car supply and prices in Canada.

Lease penetration (mainstream and luxury) was close to 35 per cent in Canada in 2008. But the market collapsed in 2008-9 falling to just over 10 per cent in 2010. It sat at about 18 per cent at the end of 2013.

As of the end of last year, OEM’s like Chrysler was doing almost no leasing. And while Cadillac lease rates were over 40 per cent, GM mainstream lease rates were about 10 per cent. Ford leased about 13 per cent of its vehicles. Lincoln lease rates were just under 30 per cent.

The Japanese and Korean rates ranged from Subaru, Toyota and Honda at about 27 per cent to Kia and Hyundai at five and three per cent respectively.

VW lease rates are about 27 per cent while MINI is at 40 per cent.

As for used supply, he said figures indicated supply would increase every year to 2019 as they have been increasing as the recession eased and as new sales increase.

“That means used vehicle volumes three years later and higher fleet and lease volumes,” Abdalah said.

He went on to say that as the economy improves, buyers will turn to new with larger volumes of used via the trade-in route.

This should mean a drop of about 2.25 per cent in used prices by 2016-17. In other words, a car with a price tag of $10,000 this year will be worth $850 less.

There will also be an overabundance of two to five-year-old vehicles but a shortage of older ones.

He predicted compact car (used) prices will remain strong in 2014-15 even as supply increases because of gas prices.

Those gas prices will affect used luxury midsize sedans, whose prices will decrease steadily to the end of the decade as will full-size used pickups which will decline by 1.8 per cent this year and keep on declining to the end of the decade.

And while minivan prices will not increase this year, supplies will increase in 2015 followed by four years of supply-driven declines in prices of roughly six per cent each starting in 2016.