SANTA BARBARA, Calif. -

The share of dealerships’ transactions commanded by used vehicles has slid “steadily” since the start of 2012, and used-car demand is not seeing as rapid of an increase as the new-car side.

These are just some of the findings uncovered in the Industry Insights of ALG’s latest Industry Report, as the firm’s Market Analytics group examines how current used-car trends affect future forecasts.

ALG weighed the impacts of the supply and demand sides of the used-car market, and then shared its short- to mid-term outlook on residuals as well as its long-term outlook on residuals.

It began with the more immediate impact.

In the next year, the firm is projecting used market values, on average, to fall by about 4 percent to 5 percent, “partially driven by used market demand softening relative to new market demand.”

In fact, ALG noted in its demand analysis that new-car demand has increased quicker than used-car demand, and this has only “accelerated” in recent months.

However the firm did note: “Relatively low levels of used market supply have so far been counteracting the expected impact from weaker demand.”

Meanwhile, in the next two to three years, used market values will likely decline between 8 and 10 percent from where they are now, ALG said.

“A combination of reduced demand and rising supply in the used market is expected to add pressure on used market prices going forward. Yet given the pre-recession used market values, the mid-term outlook is still predicted above the levels seen in 2006 and 2007 due to much mitigated used market supply,” officials added.

What about further down the road? Offering its long-term outlook, ALG shared: “The overall softening in the used market from a demand perspective will impact used market values. ALG believes used market values will further soften and decrease during the next few years, lowering residual values.”

The firm pointed out that its current 24-month residual outlook is roughly 4 percentage points (of MSRP) softer than what a two-year-old car would currently fetch in the used market; while its 36-month residual outlooks is off by about 5 percentage points  when compared to actual 36-month auction returns, ALG said.

“The long-term average of three-year-old used values is (about) 45 percent of MSRP at the industry level,” the firm stated. “ALG’s current industry outlook for the 36-month term is (about) 47 percent for the September/October 2012 edition.”

More on Retail Transactions

So far this year, there have been 14.81 million combined new and used retail transactions, ALG said, and this does not include fleet sales, private-party sales or used sales outside of the one- to seven-year-old ballpark. Breaking it down, there have been 6.88 million new retail sales and 7.92 million used retail sales.

This translates into new-vehicle retail sales comprising 43 percent of all retail transactions, with used sales (of one- to seven-year-old units) taking 57 percent, ALG noted

The used-car side’s share of the retail market, however, has slid after reaching an apex in 2010, according to ALG.

That trend continues this year.

“The percentage of dealership transactions attributable to used-car sales has been steadily declining since January. Since their peak of nearly 65 percent in 2010, dealer used-car transactions have been eclipsed by new-car transactions as a percentage of total vehicle sales,” analysts stated.

“In June 2009, the officially defined end to the economic recession, the percentage of used retail transactions of one- to seven-year-old vehicles hit a low of 51 percent of new and used retail sales combined, though the used share of transactions largely hovered around the 60-percent mark until early 2012,” they added.

ALG went on to point out that even though the recovery has been going on for three years, this year is when it has been most noticeable that the scales are tipping back toward new.

“The share of new transactions clipped the 50 percent mark as of August 2012, showing consistent upward movement since the lows in 2010,” ALG added.