What’s in Store for Used Market?

IRVINE, Calif. — For most of the year, used-vehicle prices have been on the upswing, but their rise has started to diminish, and one Kelley Blue Book analyst, in particular, said this could mean that the used market has hit "a point of equilibrium."

In the latest Blue Book Market Report, KBB director of vehicle valuation Juan Flores explained that lack of used inventory has been the biggest catalyst in pushing used values up. However, the robust used pricing isn't expected to stick around in every vehicle category.

"While values for used vehicles have consistently strengthened through much of 2010 (values are up 6.2 percent year-over-year), the slowing pace of appreciation may be an indication that the market has reached a point of equilibrium," he shared.

"The key determinant in the strength taking place so far is a lack of supply, and while demand has been sufficient to keep prices strong, we don't believe that the strength will be maintained across all segments moving forward," Flores explained.

In fact, there will likely be a dip in SUV and truck pricing in the second half of the year, he noted. However, the upward movement in compact car and midsize car prices is expected to remain.

More specifically, full-size pickup trucks are projected to dip 0.9 percent in the third quarter and 0.8 percent in the fourth, while full-size SUVs are likely to see their prices fall 0.8 percent in the third and 0.6 percent in the final period.

There is a 0.7-percent decline expected in the third quarter for midsize SUVs, whose prices are projected to fall 0.7 percent in the fourth quarter, as well.

KBB anticipates that midsize crossovers are going to be show a 0.2-percent dip in the third and a 0.6-percent decline in the fourth. Luxury cars are projected to fall 0.3 percent in the third, and 0.6 percent in the fourth.

Compacts, though, are predicted to see a price incline of 1.1 percent in the third quarter and a 0.4-percent uptick in the final period of 2010.

Subcompacts' third-quarter price gain is predicted to be 2.1 percent, which is expected to be followed by a 1.3-percent increase in the fourth.

The upswing in midsize car prices is likely to be 0.9 percent in the third and 0.4 percent in the fourth.

Looking at some June-specific data, full-size pickup trucks showed the largest month-over-month gains with their prices up 1.5 percent, followed by sports cars (up 1.2 percent) and full-size crossovers (up 1.2 percent).

Full-size SUVs and compact crossovers were also up more than 1 percent, as prices in both these segments saw 1.1-percent gains from May.

"Gas prices have steadily increased since January 2009, yet they have not risen to a level sufficient to influence consumer behavior," Flores commented. "Even traditionally fuel-sensitive segments have remained resistant to the downward pressure on values as a result of increasing fuel prices.

"In fact, full-size pickup trucks and SUVs were among the best performing segments this month, each up more than 1 percent," he continued. "Overall, values were up a modest 0.7 percent for the month. Hybrid and luxury crossovers underperformed the market average, depreciating 1.5 percent and 0.6 percent, respectively, which can be attributed to typical seasonal depreciation."

Which Brands Buck the Trend?

Moving on, KBB provided an update on a trend that was occurring at the end of last year. Audi, Mercedes-Benz and Subaru had "managed to buck the downward truck" in the midst of a market whose future remained shaky.

"However, since the beginning of the year, these brands have fallen back in line with the rest of the industry," officials noted.

To better illustrate this point, KBB provided the following graph: 
 

And now, the brands that currently are "bucking the trend," are Ford, Kia and Infiniti.

"With low inventories and a good amount of demand in the used-car market, and overall stability through the first half of the year, three 'new' brands are bucking the stability trend and seeing significant gains; Ford, Kia and Infiniti," officials stated.

"These brands have performed very well, seeing little depreciation and increases in new-car sales. Ford's revitalized lineup and decision to not accept government TARP funding in 2009 has helped to strengthen its brand in the eyes of car shoppers," they added.

As far as Kia, KBB suggested that it has become the brand shoppers turn to for "stylish and affordable transportation," something most shoppers are after in light of the struggling economy.

"Additionally, Infiniti has taken advantage of a renewed interest in luxury vehicles as leasing becomes more available," officials stated. "In fact, Kelley Blue Book Market Intelligence data shows that consumers are starting to feel more comfortable buying luxury than they did at this time last year."

To show how these three brands have been the exception to the rule, KBB offered the following chart: