Despite upgrades, late-model units not fetching higher prices
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IRVINE, Calif. –
Vehicles in recent years have become better equipped and often contain more advanced technology, but while these upgrades might lead to higher MSRPs, they aren’t lifting prices in the auction lanes as late-model pre-owned units.
The reason?
Largely, there are so many of them.
According to the latest Blue Book Market Report from Kelley Blue Book, third-quarter auction prices on 1- to 3-year-old vehicles were down 4.6 percent.
Meanwhile, the average retention on these cars (which KBB measures as auction value as a percent of MSRP) was 56.4 percent in the third quarter. That’s down from 58.8 percent in Q3 of 2015 and 59.4 percent in the same period of 2014.
Driven by lease returns, auction volume was up 11 percent from the third quarter of 2015.
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“Despite the average cost of a 1- to 3-year-old vehicle at auction remaining relatively unchanged over the past several years, the average retention value of these vehicles fell by roughly 4 percent in the third quarter,” KBB analyst Sean Foyil said in a news release.
“These vehicles have higher initial costs and may be better-equipped than those in previous years, so this may indicate that buyers at auction are not willing to pay a premium for these vehicles due to the saturation of vehicles available in the market,” he said. “With such a large supply of used vehicles, many of which may contain added packages and technology upgrades, there is not enough incentive to pay more at auction.”
And the off-lease volume is likely to only increase going forward.
In his quarterly conference call earlier this month, Cox Automotive chief economist Tom Webb said the 3.1 million off-lease units expected to come down the lanes this year “is not that big of a deal in the grand scheme of things.”
But next year’s expectation is for off-lease volume to hit 3.6 million units, which “is a much more problematic number,” he said.
“And then an excess of 4 million in 2018, the numbers get real big so you would expect some downward pressure (on wholesale prices),” Webb said.
Staff Writer Nick Zulovich contributed to this report.
