CARY, N.C. -

Full-year new-vehicle sales will likely climb for the fourth straight time, rising more than 5 percent from 2012 to hit 15.6 million units. That’s according to The Kiplinger Letter from Friday, which also projects 16.3 million new-car sales for 2014 — which would be a seven-year high.

Based on what Jim Patterson, associate editor for the The Kiplinger Washington Editors, shared with Auto Remarketing and other industry insight, the likely impact for the used-car market is mixed.

When asked what he saw as some of used-car impacts for dealers in light of four years of new-car growth, Patterson said it could mean some slowdowns in used pricing later in 2013, with that carrying over to next year.

“From what I’ve heard from auto economists, that hasn’t really shown up yet, but with more supply hitting the used market due to rising new-car sales, it’s something to keep an eye on,” Patterson wrote.

“I don’t regularly keep tabs on used-car price trends, but I know that coming out of the recession lots of dealers were enjoying very strong used-car prices, especially for fuel-efficient models during periods when gas prices were rising,” he added.

That likely won’t be as much the buzz moving forward, Patterson said.

“And in fact, used-car prices are something we’ll definitely have to monitor for their impact on sales of new cars, since one of the factors that’s been driving the new-car market has been the relatively strong prices of used cars involved in trade-in deals.”

From what Patterson has gathered from his contacts, it doesn’t appear to be something to worry too much about right now; however, it’s worth some attention.

To add some additional perspective to the notion of strong trade-in prices driving new-car sales, consider this: About 60 percent of new-vehicle sales have a trade, says Ricky Beggs, senior vice president and editorial director at Black Book.

Patterson went on to add: “The average transaction price of a new car is $31,500, which I believe is an all-time high. Obviously, that’s pretty steep for a lot of folks, so strong used-car values are key.”

Should that downward used price slide happen, the SUVs will likely have particularly notable drops — especially the larger models, he said

“Consumer tastes really seem to have moved to smaller crossovers, so if you’re a dealer with, say, a used (GMC Yukon) Denali or a last-gen (Ford) Explorer, I doubt you’ll have too many customers scrambling to buy it,” Patterson said. “And even fuel-efficient compacts might be a tough sell, since the new versions coming out now are so much richer in electronics and other amenities than their used counterparts.”

Arrival of 2014 Models & Next Year's Sales

Looking forward, Black Book expects there will be 16 million new vehicles sold next year, which would still be an increase, just not as high as the projected 2012-to-2013 bump.

Of course, as Kiplinger noted, that would be the strongest new-car market in quite some time.

Those models making up next year's new-car market will be arriving on dealer lots soon, if they haven't already done so.

Traditionally, Beggs said, the new model-year units have been priced and arrive on dealer lots by the beginning of September, although he finds that time period seems to widen every year.

When they do arrive, expect a trickle-down price drop. The 2014 new-car models will push down the prices of 2013 new-car models, which will push down the prices of 2013 used models, which will soften the prices of 2012 used models.

“Nothing out of the ordinary. It has got to happen and this is the time of year that it does,” Beggs said.

In fact, during the Aug. 1-to-Nov. 1 period of 2012, wholesale prices dropped 5.1 percent. In the same time frame of 2011, the decline was 4.2 percent. Each of those represented the heaviest three-month price slides of their respective years.

This year, Beggs anticipates a decline in the range of 5.3 percent to 5.8 percent between Aug. 1 and Nov. 1, thanks to a softer market in 2013. And this again would be the biggest price decline for any three-month period of the year.

Lease Returns

Looking at a specific new-vehicle sales stream that impacts the used market, the Kiplinger Letter also indicates that lease penetration is around 25 percent, which it called “an all-time high.”

Beggs puts it at about 23 percent to 24 percent. And while industy watchers may tend to vary with their leasing calculations, in any case, it's fair to say the market is hot.

While those vehicles, obviously, won’t be making their way back into the used market until a few years down the road, Beggs has found that current lease return numbers are thriving.

This, along with the trades, has greatly impacted the used market.

“The used-car market is still noticeably strong considering how much additional inventory has been brought back into the market through trades during the last few years,” said Beggs.

“What’s more, additional off-lease supply, another form of a trade, is also coming back into the market in greater numbers, contributing even more toward the decline in prices.”

This off-lease upswing could continue for quite some time.

Off-lease supply actually bottomed out in 2012, Beggs said, before picking up in December and gradually climbing this year. He anticipcates it will continue rising for the next three to four years.

Used Supply Age Gap

Here's an interesting vehicle age phenomena that dealers may soon see within their used inventories.

Thanks to the a fresh crop of off-lease vehicles, the flow of 2- to 4-year-old vehicles should be strong for dealers. Then, however, there will likely be a gap.

Because of the new-car market drying up a few years back during the recession, cars in the middle age range (4- to 6-year-old units) are in low supply.

But, that supply then picks back up when you look at the 8- to 11-year-old crowd. That reflects some of what Polk found in its latest report: the U.S. vehicle fleet population is continuing to get older.

Polk said Tuesday  that the average age of all units on the road now stands at a record high of 11.4 years. Analysts arrived at that figure based on review of more than 247 million U.S. car and light truck registrations earlier this year.

For passenger cars, average age also met a record high at 11.4 years, while the average age of light trucks also increased, to a record 11.3 years. Polk expects this trend to continue, while a shift in the fleet of vehicles in operation (VIO) is underway.

Point is, with older vehicles, that means more consumers who need to replace their cars, Beggs said.

Additional need-based new-car intenders plus economic improvement that gives more consumers the ability to pay for a new car drives what is projected to be an even stronger new-car market in 2014.

And as Beggs, Patterson and other industry insiders have illustrated, that certainly impacts a dealer's used car lot.

 

Joe Overby can be reached at joverby@autoremarketing.com. Continue the conversation with Auto Remarketing on both LinkedIn and Twitter.