IRVINE, Calif. -
Despite a slowdown in values during the final six months of 2010, full-year used-vehicle prices fell less than 3 percent and finished the year with a relatively steady month, according to Kelley Blue Book.
Not only that, but retained value comparisons for full-year 2010 showed improvement yet again, the company said in the latest Blue Book Market Report.
Looking more specifically at the end of used-vehicle value changes at the end of 2010, there was a 0.2-percent sequential decline in used values during December.
“The market appreciation experienced during the first half of 2010 allowed used-car values to experience only a 2.9-percent drop year-over-year, even with the softening of used values that occurred in the latter part of the year,” said KBB analysts Juan Flores and Alec Gutierrez in the report.
Looking at some quarterly data, the fourth quarter showed a 2.7-percent sequential dip in retained value — defined in this analysis as auction value divided by original MSRP — for one- to three-year-old used units. This followed a 1.1-percent drop in the third quarter compared to the prior quarter.
However, the first two quarters of 2010 saw retained values improve 0.1 percent and 1.7 percent, respectively.
Flores and Gutierrez further noted that despite the industry’s up-and-downs since the beginning of 2008, there has been persistent upward movement in retained value.
Specifically, retained values were at 41.1 percent in 2008, then increased to 46.8 in 2009. Last year, they surged ahead to 51 percent.
“This trend bodes well for the average consumer at trade-in time, since they can expect to receive more for their trade-in than in previous years,” the analysts illustrated. “In 2008, values were hit hard by soaring gas prices and the popping of the real estate bubble.
“The following year, values steadily began to improve because of increased consumer demand for used vehicles, rather than new cars, as a result of the recession coupled with a lack of trade-ins and vehicles coming off lease,” they continued. “During 2010, used-car demand remained strong and a lack of used-vehicle supply continued to help the market maintain strong values.”
Stability in used values will likely continue amid the auto market rebounding from the recession and used demand staying healthy, KBB projected.
Drivers of Strong Value Retention
Continuing on, KBB also offered a bit of insight into the factors that have pushed certain vehicles to stronger retained values.
Analysts emphasized that vehicles with the least amount of incentives in the last year have had stronger retained values that those with the heftiest incentives.
To illustrate this point, the analysts shared retention figures for both the luxury and non-luxury sides of the market.
On the non-luxury side, the five 2010 model-year used vehicles with the heftiest cash incentives had an average retained value of 66 percent. Meanwhile, the five 2010 used units with the lowest incentives retained 78.2 percent of their value, on average.
The overall average on the non-luxury side was 70.3 percent.
For luxury vehicles, the top five 2010 model-year used units in terms of heaviest incentives kept 72.4 percent of their values, on average. That figure jumped to 81.3 percent for the five with the lowest incentives.
The average retention rate on the luxury side was 78.6 percent.
“Manufacturers offer incentives to increase sales; however, this can negatively impact the resale value of older models if incentives are offered for too long or for too great of an amount,” the analysts shared.
Residuals, Projections for 2011
Moving along, KBB director of residual value consulting Eric Ibara offered some analysis on what may be in store for 2011. He expects things to be “bearish” this year for fuel-efficient rides in light of projections that the gas-price hike will be rather modest in 2011.
Plus, with the “ongoing proliferation” in this segment, residual values have dipped.
Specifically, 36-month residual value for the subcompact segment declined 2.9 percentage points year-over-year, while hybrid/alternative-fuel vehicles are down 2.7 percentage points. There was a 1.1 percentage-point drop in the compact car segment.
Ibara shared some of the models whose 36-month residual values declined significantly year-over-year for the January-February 2011 period. Among those were:
—Toyota Yaris (down 6 points)
—Volkswagen Golf (down 4 points),
—Lexus HS 250h (down 12 points)
—Toyota Camry (down 7 points)
—Nissan Altima (down 8.4 points)
—Mini Cooper (down  9.2 points)
—Mazda3 (down 6.4 points)
—Volkswagen GTI (down 5 points).
“Some of these drops are attributed to gas prices, weak redesigns or heavy incentive spending,” Ibara shared.
Conversely, a segment that remains on the upswing is wagon category, which showed a 3.3-percentage-point hike in residuals. Models from Audi, in particular, have been at the forefront. Residuals for the A3 have climbed 6 points and the A4 has jumped 5 points.
The Subaru Outback saw its residuals rise 6.5 points.
“The aforementioned Audi and Subaru wagon models are keeping this segment up,” Ibara noted.
Moving along, he also delved into the luxury sector, which was down a bit but is expected to make some strides this year.
“While the luxury car segment experienced softness among its used vehicles, there is expected to be some strength among 2011 luxury residuals,”
A big part of that will likely be Audi, Ibara suggested. Residuals for the A8 jumped 6.5 points and the A5 is up 6 points. Infiniti’s M37 and M56 — each of which experienced a 5.8-percentage-point residual hike — were close to the top.
“Audi’s redesigns have thrust the brand into the spotlight, garnering consumer interest in both the new- and used-car markets, and putting their residuals on a steady upward trajectory this year,” Ibara commented.
“While the luxury segment is seeing strength with leaders like Audi and Infiniti, the near-luxury car segment is down 2.8 percentage points,” he added. “Aging exterior designs among near-luxury cars are contributing to the segment’s overall weakness in 36-month residual values.”
Some examples cited by Ibara are the Cadillac CTS, which has not had revamped version since 2008. This proved crucial in pushing its residuals down 5.5 percentage points.
Furthermore, the Lexus ES 350 has not seen a makeover since 2007 and its residuals were off 4 percentage points, as were the values for the Volvo C70. The last redesigned C70 was the 2006 edition, he noted.
Continuing along, the midsize truck segment has shown residual strength, once again. Its residuals for 2011 are up 5.3 percentage points. The Chevrolet Colorado (showing an increase of 7.4 percentage points) and the GMC Canyon (up 6.9 percentage points) lead the segment.
Ibara pointed to strong demand as a factor.
Midsize SUVs/crossovers show residual gains, as well. They have climbed 4.1 percentage points, a gain pushed by revamped and all-new vehicles. Among those are the all-new 2011 Ford Explorer (up 15 percentage points) and the Kia Sorento (12.4 percentage points), which has been redesigned.
The Toyota Venza, showing a 7-percentage-point gain, and the Jeep Liberty, with a 6.2-percentage-point gain, have been pivotal, as well.