SANTA MONICA, Calif. -

Along with four overall observations and projections about sagging used-vehicle values, Edmunds senior manager of insights Ivan Drury also pointed out the impact made by what he called the “invisible market.”

Drury and Edmunds’ other analysts say that a sudden halt in demand for vehicles combined with economic uncertainty will lead to an initial knee-jerk drop in used values, based on historical precedent. In 2008, they determined 3-year-old vehicles lost nearly 10% in value, whereas the year before they declined less than 5% in value.

“Recessions aren’t kind to used values,” Drury said in a news release. “With shelter-in-place mandates expected to continue through at least May for most of the country and no clearly defined end to the pandemic in sight, we can anticipate a trickle-down effect on the used market.”

And perhaps at the bottom of that trickle pattern is that “invisible market” Drury noted in Edmunds’ report. What might be “invisible” to consumers certainly is not to dealerships. Of course, it’s the auctions.

“While consumers might have some sense of visibility into (demand and trade-in values), there is an entire ecosystem where millions of units exchange hands out of the public eye,” Drury said. “Dealers often send used vehicles that have sat on their lots for 60-plus days to auction in hopes of at least breaking even on them.

“This reality is rarely on a consumer’s mind when evaluating a trade-in offer,” he added.

And speaking of trades, the team at J.D. Power Valuation Services is expecting that the reductions in trade-ins because of softening retail sales — coupled with interruptions in off-rental and off-lease vehicles coming into the wholesale space — likely will impact auction volume through at least June.

All told, J.D. Power is projecting that about 1 million to 1.25 million units will enter the wholesale market during the second quarter, acknowledging in its update posted on Friday that “changing virus, market, and macro-economic conditions can drive changes in our outlook moving forward.”

More insight from Edmunds

Drury and the other Edmunds analysts took a deeper look at the impact that this plummeting used-vehicle values will have on consumers, some of the factors at play in the market that will impact used vehicle values differently, and what the used market might look like once the economy begins to rebound.

Their research findings included:

• Shoppers in the position to purchase a used vehicle now will find some bargains, but consumers who are planning on selling or trading in their vehicle might be in for a bit of a shock.

Edmunds emphasized consumers who want to sell their vehicle for extra cash or trade it in toward another purchase might be surprised at the assessed value of their vehicle, especially if they’re comparing current list prices to their offer.

• Multiple factors will impact used vehicle values differently.

Analysts explained lower demand, unusually timed off-lease inventory and reduced auction prices are major contributors toward a drop in used car values. New car incentives from automakers in response to the coronavirus crisis will also further depress prices of off-lease, near-new used vehicles.

• Used values are expected to remain lower for the foreseeable future.

Once the economy begins to rebound, Edmunds stressed that used vehicles are often sought after as a place for consumers to save money when the nation is coming out of a recession. As a result, analysts projected used values are expected to stabilize, but not necessarily rebound significantly, since most vehicles steadily lose value as they get older.

• Unique dynamics between the new and used market could help keep used values in a healthier place.

Although used-vehicle values aren’t expected to rebound in the short term, Edmunds calculated 2019 brought a record gap of nearly $15,000 between new- and used-vehicle prices. Analysts explained this gap allows for used values to increase without becoming a threat to new, and reduced wear and tear to vehicles as consumers drive less during this pandemic could also help lift values slightly in the future.

Although used values are expected to remain lower in the near-term, Drury and the other Edmunds analysts say that there’s no one-size-fits-all answer for what consumers should do if they’re contemplating selling their vehicle right now.

“Personal finances are understandably top of mind for most people right now, so if you’re a car owner and you’re in need of quick cash, selling your vehicle is still a decent option if you’re in a positive equity position or if you have an extra vehicle in the driveway,” Drury said in the news release.

“A number of companies provide online trade-in evaluations and instant offers, and many dealerships offer to buy vehicles even without a purchase from their inventory,” he continued. “Consumers can get a good idea of what the trade-in market is for their vehicle by shopping around and determining which blend of value and convenience is right for them.”

Additional price expectations from J.D. Power

Turning back to information from J.D. Power Valuation Services, analysts noted that their data shows wholesale prices are currently 15% below their pre-virus levels in early March and represent a market fractured by extreme supply and demand.

“While severely depressed, wholesale prices are expected to recover from their current lows, with duration and degree depending on the lifting of stay-at-home orders and the extent of stimulus impact,” analysts said.

According to what J.D. Power explained as its likely scenario, the forecast has wholesale prices declining between 8% and 11% through June before improving as more businesses open throughout the country.

“Our outlook is centered on macroeconomic expectations, particularly the expectation that the country will continue to experience significant job losses through the second quarter, followed by a gradual recovery in the second half of the year,” analysts said.

“Given the highly uncertain nature of the COVID-19 pandemic, this forecast is subject to change in the coming weeks,” they added.