McLEAN, Va. -

NADA Used Car Guide probably knows dealers are looking down the lanes or staring at their tablet screens and asking, “Am I really using this much of my floor plan for this 6-year-old car?”

The reason analysts can picture this scenario is because they expect prices for 4- to 10-year-old units to be 0.5 percent higher in 2013 than like-age units were in 2012.

But if used-car managers are looking for late-model or possibly certified pre-owned inventory, analysts shared some possible good news in their latest report, “NADA Used Vehicle Price Report: Age-level Analysis and Forecast.” By comparison, NADA UCG predicted that prices for vehicles up to 3 years in age will be 1.5 percent lower than similarly aged unit prices last year.

“Historically speaking, reliability and unexpected repair cost concerns meant that vehicles over five years of age took a back seat to their younger, in-warranty counterparts in terms of demand,” said Jonathan Banks, executive automotive analyst for the NADA Used Car Guide.

“However, rapid advances in dependability over the past decade have changed consumer attitudes towards purchasing older vehicles,” continued Banks, one of many top analysts who will be featured throughout Used Car Week coming up in November.

The report elaborated about the depth of that reliability.

Banks first noted this point can be validated through a variety of metrics, including a rise in vehicle age. According to R.L. Polk, the average age of vehicles on the road increased from 9.6 years in 2002 to 11.4 years in 2013. 

Banks also mentioned there has been an increase in average mileage as accumulated mileage on units at auction grew by an average of 8 percent between 2000 and 2012.

However, what Banks contends is most telling are the annual improvements in J.D. Power and Associates’ Vehicle Dependability Study (VDS), which measures problems experienced by original owners of 3-year-old vehicles during the past 12 months.

From 2005 to 2013, the average number of problems experienced per 100 vehicles (PP100) fell from 237 to 126 — nearly a 50 percent improvement — while the standard deviation of brand-level scores, or brand score distance away from the overall industry average, fell from 63.9 to 28.0, indicating more similarity among brands.

“Given rapid advances in dependability, consumers have shown more positive attitudes toward purchasing older used vehicles, and as a result, demand for these units has blossomed,” Banks said in the report.

“In response, franchised dealers now retail more and more older units acquired via trade to retail, instead of sending them to auction as they had historically done, and are now promoting these units as value-priced alternatives to cost-conscious consumers,” he continued.

According to J.D. Power and Associates’ PIN data, as a percentage of all franchised dealer used transactions up to 12 years of age, units 6 to 12 years of age comprised 38 percent of all transactions in 2012 — up from 26 percent in 2008 — while the percentage of units of 5 years of age and below fell from 74 percent to 63 percent over the same period.

“Taking into account the ongoing improvements in quality and dependability, combined with the sales, service and parts opportunities afforded franchised dealers, NADA expects demand for older-model units will remain strong through the forecast term,” Banks said.

Through the first half of 2013, Banks recapped that prices for units from 4-to-10 years old have stayed high with prices essentially unchanged from the historically high averages observed in 2012. He reiterated prices for later-model vehicles less than 4 years in age fell by 1.2 percent during the same period.

Looking ahead, NADA UCG believes the combination of rising supply, combined with stronger new vehicle demand and favorable incentives, will translate into a steady softening of later-model used-vehicle prices through 2014.

Conversely, analysts are expected that advances in dependability and affordability relative to newer used models, as well as a rolling wave of lower supply stemming from the recession will keep prices for older models high over the same period.

Breaking the projection down deeper for the remainder of 2013, NADA UCG forecasted that prices of units 1-to-3 years in age will be 1.5 percent lower than similarly aged units were in 2012, and that prices for units 4-to-6 years in age will be 1.5 percent higher. Slipping by an average of just 0.2 percent, prices for 7-to-10-year-old models are expected to be relatively unchanged.

Regarding model year-specific expectations, NADA UCG predicted that used prices for 2013 model year units will fall by 16 percent from 2013 to 2014 — the steepest decline expected over the period.

Analysts added depreciation for other model years is expected to range from 15.1 percent for model year 2012 to 14.2 percent for model year 2008.

Depreciation is expected to average a moderately higher rate of 15 percent for model years 2004 to 2007, according to NADA UCG.

Even though dealers might still be paying more than they might want to acquire inventory, Banks wrapped up NADA UCG’s latest report by emphasizing overall market fundamentals remain healthy.

“The core drivers of used-vehicle demand will undoubtedly experience bumps in the road over the next 18 months, but directional movement will be positive. In fact, many economists believe 2014 will wrap up as the best year of growth since 2005,” Banks said.

“As we’ve discussed, a stronger economy and appealing new-vehicle incentives will continue to promote a shift in consumer preference from used vehicles to new ones, and later-model prices will suffer as a result,” he continued.

“However, improving financial conditions will also support demand among pre-owned buyers looking to replace their current used vehicle with a newer pre-owned one — a growing percentage of whom will turn to manufacturers’ certified pre-owned programs — and the rise in incentive spending is expected to be mild.

“And while growing supply will also apply some downward pressure to later-model prices, declines will be tempered by the fact that later-model volume will remain well below pre-recession levels,” Banks went on to say. “Given all of this, the decline in later-model prices should be viewed as a reasonable settling of prices following an era of exceptional growth, rather than the beginnings of an acute drop-off.”

Banks made one last point regarding the oldest units that might be in wholesale channels.

“As far as older vehicles are concerned, product enhancements have gradually made price-sensitive consumers less apprehensive about purchasing an older, higher-mileage unit they may not have been considered in the past, and there is no reason to expect this to change going forward,” Banks said.

“This strength in demand, coupled with the residual effect of some nine million new vehicle sales lost during the last recession, mean that older used vehicle prices will stay high for at least a couple more years to come,” he went on to say.

Banks is one of a host of experts who will be on hand for Used Car Week, the string of highly anticipated industry events that includes CPO | The Pre-Owned Conference, the SubPrime Forum, the Re3 Conference and the National Remarketing Conference. All of the events are set to run from Nov. 11 through 15 at the Manchester Grand Hyatt in San Diego.

For more conference details, including a special golf outing at renowned Torrey Pines Golf Course located in La Jolla, Calif., visit www.usedcarweek.biz.

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