Overall used-vehicle transaction prices have never been higher than they were last quarter, according to Edmunds’ latest Used Vehicle Report released Thursday.
But interestingly enough, the gap between the average prices of 3-year-old vehicles and new vehicles reached a third-quarter high.
At play is an influx of off-lease vehicles returning to market, more than half of which are SUVs and trucks, that “doesn’t have an end in sight”, and a new-car-buying population leaning towards vehicles with all the tech perks.
Getting into some of the data specifics, used vehicles had an average transaction price of $20,683 in Q3, the highest ever.
Edmunds attributes this record to the fact that 68% of used sales were vehicles age 4 and under and that trucks and SUVs have an “increased presence” in the used market.
Likely driving that young crop of vehicles is the off-lease volume.
There are 3.97 million lease returns expected this year (compared to 3.94 million in 2018), says Edmunds, and 52.6% of those are trucks and SUVs. This is the first time that there will be more truck/SUV lease returns than car-lease returns, Edmunds said.
“2020 will further the trend with enough off-lease SUVs alone to exceed cars.The influx of off-lease vehicles into the used market is reflective of new-car shopper preferences for SUVs and trucks, better positioning used vehicles as a viable alternative to new,” Edmunds said in the report. “But the large quantity of these vehicles is beginning to soften values in these segments that have held strong for years.”
And so, too, is the fact that new-car buyers are choosing more highly contented vehicles, which Edmunds estimates has led to a 35% price difference between starting MSRP and transaction price.
It also leads to lower values once these vehicles hit the used market, given that these features are often tech amenities, Edmunds said.
“By nature, tech-based features are susceptible to higher depreciation because of their propensity to become obsolete more quickly than traditional features,” analysts said. “This trend is sure to continue, contributing to further depression of residual values.”
What’s also likely to continue is the wave of off-lease volumes, thanks to retail lease sales that keep climbing. Edmunds is forecasting lease volume of 4.3 million units this year, up from 4.2 million last year and in 2017. That would make it five straight years of lease volumes at or above 4 million units.
“As the used market grows increasingly saturated with off-lease vehicles, the price gap between new- and used-car prices is likely only going to continue to widen,” Edmunds senior manager of insights Ivan Drury said in a news release accompanying the study. Already, the difference between the average transaction price of a new vehicle and a 3-year-old vehicle was $14,951 in Q3, the widest it has ever been in the third quarter.
“As the divide in average transaction prices for new vehicles versus near-new grows, the merits of a new-car purchase will come into question more often, especially for new vehicles that have not had a significant redesign,” Edmunds said.
“And while transaction prices for both segments are at an all-time high, near-new vehicles still represent a bargain, because residual values have not kept up with transaction prices of newer vehicles,” it said
Such gaps in pricing could make for a tougher choice for consumers between new and used, as there are also now plenty of pre-owned SUVs and trucks from which to choose.
Used-vehicle sales had a solid third quarter, with 10.37 million units moved, according to Edmunds. That’s up from 10.3 million in Q3 2018 and 9.73 million in Q3 2017. It is also the highest Q3 reading in the six-year data set provided by Edmunds.
“Many factors indicate the pricing gap between new and near-new vehicles will continue to grow, and the saturation of the used-vehicle market and pricing compression between brands and categories don’t appear to have an end in sight,” Edmunds said in the report.
“As new-car sales are slated for a downturn in 2020, the used market, if anything, may see more buyers come to the table,” analysts added. “The value proposition for used is already here. The only question is how many consumers are sitting on the fence between the new and used market and what will persuade them to take the leap and buy used.”
Source : AutoFinanceNews
