| -

BANDON, Ore. — In the midst of used-vehicle inventories hitting their lowest levels in almost five years, used pricing remained on an incline, particularly for trucks and SUVs, according to CNW Research.

More specifically, used-vehicle days' supply was at 53.3 days in March, which was 24 percent lower than the year-ago period. It marked shortest inventory level since June 2005, when it was at 51.3 days' supply.

"In a reversal of February, the shortest supply could be found with trucks as SUVs and pickups both saw price increases at auction as well as at retail," commented Art Spinella, CNW president.

"Casual sales of SUVs and pickups are similarly showing short supply and quick turnover," he added. "The average time between first offering a private party truck and sale of that vehicle is down to 2.2 weeks compared to more than eight weeks a year ago."

Pricing in More Detail

Full-size SUVs, in particular, have seen more than a 12-percent gain in wholesale prices and a 10.2-percent upswing in retail prices. Compare that to small cars, which have seen a 3-percent wholesale price gain and a 2-percent retail prices rise. The industry's asking prices in used retail sales through the first half of April have climbed 5.3 percent for franchised dealers and are up 6.5 percent for independent stores.

There has been a 3.23-percent rise in transaction prices for franchise stores in the month's first 15 days and a 5.57-percent gain for independents.

"The month-over-month data isn't quite as impressive when discussing actual selling prices with a 0.31-percent increase and a 0.84-percent decline for franchised and independents, respectively," Spinella shared. "But that isn't as much of a negative as it might seem since CNW transaction prices don't include quite profitable F&I penetration, which increased for both dealer channels by low double digits."

Used Sales Likely to Climb Almost 3 percent

As far as projections for April, CNW expects the industry's used sales to reach 3.305 million units, a 2.8-percent increase from roughly 3.22 million sold last April.

Franchised dealers are expected to see their used sales fall 4.4 percent, while CNW predicts independents' used sales will climb 5.1 percent.

Private party sales are projected to rise 10 percent from April 2009.

Continuing on to offer some more insight into used-vehicle trends, Spinella argued that various "hot spots" for the used market can be found.

For example, he noted there have been used sales increases as high as 60 percent throughout areas of Florida and California.

"The Detroit DMA has seen a massive increase in used sales, but that can be attributed to the collapse of new-car sales in a region that has typically bought fresh-from-the-factory through a variety of manufacturer plans," Spinella pointed out.

"And while home equity loans haven't been the driving force as they once were in getting funds to make used-vehicle acquisitions, whatever equity is available is now going to home improvements rather than vehicles," he continued.

Financial Impact

Moving on, Spinella also pointed out that "noticeably" more used-vehicle loans have been granted, though it has been "hardly a flood" of approvals.

"Still not the volume seen in '06 by any stretch, but better than '09," he shared. "Add the growing number of Buy-Here, Pay-Here outlets and it's not surprising that average FICO scores are slipping for used-car buyers."

Almost a third (over 30 percent) of used transactions are comprised by customers with FICO scores lower than 670. In the same period of 2006, 45.6 percent of used shoppers were below that particular score.

Shifts in the Used Market

Additionally, CNW discussed analysis that suggests the next 10 years may result in franchised stores losing significant share in the used market. Currently, CNW data indicates that franchised dealers share of the used market is more than 36 percent.

However, by 2020, it appears it may decline to just over 32 percent. 

Major causes for this decline? Related shifts in technology and demographics, according to CNW.

"Technology is allowing private-party sales to be as simple as pressing a button or two on a cell phone. Apps already exist so an interested consumer can find just the right vehicle in a certain price range via hand-held electronic devices and complete much of the negotiating and 'paperwork' without walking into a dealership," Spinella pointed out.

"This method of sales is likely to increase dramatically in large part because of the second change — demographics," he added.

Specifically, consumers older than age 45 make up the lion's share of shoppers doing trade-ins, according to CNW data. What's more, less than a third (31 percent) of the age bracket attempts private sales.

Contrast to the 35-and-under crowd, which is much more inclined to use private channels.

"Conversely, more than half of those under 35 are selling or buying a used vehicle through such Web sites as craigslist or other classified advertising Web-based sites with heaviest emphasis on acquiring the car or truck from a private party," Spinella explained.

CNW also provided some data suggesting that consumers interested in selling their rides can get more for their vehicles by selling it themselves.

"Using three baskets of vehicles including small, budget and middle categories in the first, light trucks in the second and luxury models in the third, it was clear that selling a car or truck privately generates more money for the seller than trading that vehicle in to a dealer," Spinella pointed out.

CNW included data from calendar years 2006 through 2009.

For each year and for every "Basket" of vehicle segments, private sales fetched a greater percent of book value than did trading it in to the dealership.

For instance, in 2006, a Basket 1 vehicle (small, budget, middle) was sold, on average, for 103.7 percent of book value when sold via private channels. However, when taken to the dealership, the seller only got 92.4 percent of its book value.

"For a $10,000 vehicle, the difference translates into more than $1,100," he explained.

Continuing on to offer some context to this shift in the used landscape, Spinella did note that a "bright side" for dealers in this shift is that they can offer what others can't: warranties, financing alternatives and service.

"While a smaller percentage of those under 35 see this as important compared to those over 45, the once dominant reason for buying from a dealer — a wide choice of vehicles to chose from — is beginning to take a back seat to available services," Spinella noted. "In turn, this is and will continue to put dealers in the business of being high service customer-oriented operations."

He continued: "It also means dealers will have to begin pooling their inventories in order to offer availability of desirable makes and models. This goes beyond simple dealer-trades. It means expanding programs that allow dealers to see what other dealers have in stock so when a customer asks for a blue Mustang convertible, it can be found in minutes.

"But this, too, requires additional involvement and refinement ranging from having a 'dealer trade' pricing structure as well as a clearly defined and universal "condition" reporting technique," Spinella added. "The simple fact is this: To remain an isolated used-car operation without interconnectivity with other dealers means a declining market share of previously owned sales."