NADA UCG: September Used-Price Depreciation Could Reach 3.5 Percent
NADA Used Car Guide projected that used-vehicle depreciation isn’t going to slow down as the industry approaches autumn.
In their August edition of Guidelines, analysts forecasted September’s average drop to be within the range of 3 percent to 3.5 percent; a level slightly less than what was listed in August’s edition of the Official Used Car Guide, which showed year-to-date depreciation nearing 3.8 percent.
“Over the next few months we expect to see an acceleration of the seasonal softness that usually begins as the summer winds down,” NADA UCG executive automotive analyst Jonathan Banks said.
“This period is typically affected by downward price pressure from the new-vehicle market in the form of increased discounts as dealers and manufacturers look to make room for incoming new models,” Banks continued. “At the same time, off-rental volume begins to hit the used-vehicle market in larger quantities as rental fleets divest themselves of unneeded supply following the end of the summer travel season.
“Gradually cooling demand also plays a role over the period as consumers begin to shift their focus toward seasonal concerns such as the start of a new school year and the looming holiday season,” he went on to say.
Although depreciation during the next few months will be more substantial than what has been seen so far this year, NADA UCG emphasized this condition doesn’t mean that analysts are expecting any major negative shifts in underlying market drivers.
“Overall used market fundamentals remain squarely on stable ground,” Banks stressed. “Manufacturers continue their judicious use of incentives, credit availability is improving and late-model used vehicle supply remains tight.”
But what could be a fly in the ointment?
It might be the nemesis that’s agitated both consumers and used-car managers — gas prices. Banks acknowledged that since fuel costs have spiked nearly 30 cents since June, the jump certainly has the potential to disrupt used-vehicle demand.
“Higher crude oil prices over the past month are of course playing a role, but the big jump seen over the past two weeks has been caused by the unusual combination of a burst pipeline in Wisconsin and equipment issues at refineries in the Midwest, along with a more recent fire at a refinery in California,” Banks recapped.
“As of this writing, the burst pipeline has already been fixed and the magnitude of the refinery fire in California isn’t as severe as initially thought,” he pointed out.
“Given this, it’s expected that the impact of these events will only be felt at the national level for a short period of time,” Banks projected.
NADA UCG also mentioned the end of summer marks the return to winter blends of gasoline, which are less expensive to produce. Analysts believe this development will push gasoline prices lower.
“Considering these points, we only expect to see mild price fluctuations for fuel sensitive segments over the coming weeks,” Banks indicated.
“That said, it would not be surprising to see more pronounced changes in effected regions, particularly California and the Pacific Northwest,” he added.
NADA UCG went on to stress that factors such as gas prices have a rippling effect throughout the economy, which analysts think is still have a tepid recovery. The firm noted any upward movement in fuel costs seems to create ramifications in housing and employment, which haven’t gained positive ground at a significant pace.
“It’s more evidence that the impact of the 2008-2009 financial crisis and subsequent recession will linger for an exceptionally long period, crimping growth at least through 2013,” Banks projected.
“While conditions have steadily improved, the sharp correction in lending standards by banks continues today; and business managers’ and consumers’ confidence that any pickup in growth can be sustained remains fragile,” he continued.
“Moreover, though we expect Congress to act late this year to renew tax rates for most, if not all, Americans and to postpone big spending cuts, uncertainty will continue to plague the economy, dampening growth, through at least the end of this year and possibly into spring 2013,” Banks went on to say.
“Nevertheless, the tepid pace of expansion expected over the second half of the year should be enough to see annual new-vehicle sales exceed 14 million units and preserve stout demand for used vehicles,” he concluded.