Prices of late-model used vehicles will peak for the year in the next few weeks, then gradually fall, ending the year close to January levels, analysts say.
Analysts at NADA Used Car Guide and Kelley Blue Book differ over when they believe prices will peak, but agree that they will start to fall in June.
Used-vehicle prices have climbed because of low used-vehicle inventory, high gasoline prices and demand for fuel-efficient vehicles.
As measured by one index, used-vehicle prices are approaching the record reached last May. Analysts hesitate to predict that a record will be set this year, but “we’re pretty close,” says Tom Webb, Manheim Consulting’s chief economist. “It wouldn’t take much.”
For dealers buying used vehicles from auctions or consumers, correctly anticipating a price downturn is critical. In addition, rising used-car prices are pumping up new-car sales.
Tom Kontos, executive vice president of customer strategies and analytics at ADESA Auctions Inc., says used-vehicle prices are so strong that many consumers who straddle the fence between buying a new vehicle or a used one are choosing new.
Typically, when the price of a used car gets to 60 percent of the new model’s price, shoppers will buy new. Kontos says that as of January, the most recent month for which he had data and before the run-up in used prices of February and March, used-vehicle prices were at 56 percent of new-vehicle prices.
Tim Walters, owner of Walters Elkland Chevrolet in Elkland, Pa., is among the many dealers taken aback by used-vehicle prices.
He recently took a 2007 Chevrolet Equinox as a trade-in, at a cost to his dealership of $14,000. That’s about $2,000 more than he would have spent on the same model-year vehicle two years ago.
“I remember buying off-lease Equinoxes for 11 grand,” Walters says. “I scratch my head, but that’s the market. ”
NADA Used Car Guide’s Larry Dixon expects prices of 1- to 5-year-old used vehicles to follow seasonal patterns and peak in late April or May, with the average price about 6 percent higher than in January. He expects overall prices to post a 1.5 percent gain for the year, vs. a 3 percent rise in 2011.
“Prices will continue to increase over the course of the year, but not at the pace that we saw last year,” Dixon says.
He predicts that prices of used compact cars such as the Honda Civic and Ford Focus will increase 3 percent for the year while SUV prices will rise less than 1 percent.
Alec Gutierrez, an analyst at Kelley Blue Book, expects prices of 1- to 3-year-old used cars and trucks to crest in late May or early June about 2 percent below last year’s high.
Manheim Consulting’s Used Vehicle Value Index in March stood at 126.2, up from 125.8 in February and 124.2 in March 2011, but below the record 127.8 posted last May.
The index measures changes in wholesale used-vehicle prices and is adjusted for make, model and time of year. It started at 100 in 1995.
Says Gutierrez: “By the time we reach November, December — when auction activity lightens up and there is not as much interest in buying fuel-efficient vehicles — I wouldn’t be surprised to see values end up shedding most of the gains that we saw this year and ending the year flat, if not down 2 or 3 percent.”
ADESA data show that the average price of a used vehicle in March was $10,612, up 8 percent from February and 1 percent from March 2011.
Kontos says supplies of late-model used vehicles will remain tight into 2013, buoying prices. After that, more off-lease vehicles should start returning to the market. With greater supply, prices should soften.