Kelly Blue Book is cautioning dealers during the months ahead to watch out and make sure they don’t “overpay” for fuel-efficient vehicles running through the auction lanes.
Though high fuel prices have made these compact and subcompact gas sippers a hot seller and an attractive option for many consumers, Kbb.com contends “with so many new and redesigned subcompact and compact offerings available today, consumers will have little reason to pay close to sticker for a one- or two-year-old used vehicle.”
And as wholesale values rise, the site’s analysts noted dealers will find it hard to make a profit when passing along these expensive used vehicles to shoppers.
In fact, rising used-car values may have played a role in supporting the increase in new-vehicle sales in recent months, especially sales of fuel-efficient vehicles, officials asserted.
“We are suggesting that dealers avoid overstocking fuel-efficient units rather than shy away altogether. It will still be important to at least have a minimally sufficient inventory of subcompacts, compacts and hybrids available for sale, but dealers should make sure to try and maintain a less than 30 days supply,” Alec Gutierrez, senior market analyst of automotive insights for Kelley Blue Book, toldAuto Remarketing on Monday.
“It appears as though fuel prices may have peaked, so we may see values of fuel-efficient vehicles begin to lose momentum in the weeks ahead. Dealers should focus on compact crossovers and mid-size vehicles as suitable alternatives. Values have remained relatively stable in each of these segments and we believe that these vehicles should remain in high demand, and thus, a safe bet for dealers looking for inventory,” he continued.
And as wholesale prices peak, leading to higher used-car prices; and high fuel prices spur recent interest in gas sippers, Kbb.com asserts that OEMs will be rolling out even more fuel-efficient units in the months to come.
“There should be at least a handful of additional fuel-efficient vehicles coming to market in the months ahead. The Chevrolet Spark, redesigned Ford Fusion, and Dodge Dart are just a few of the fuel-efficient offerings that should be arriving later this year. In addition, inventory is relatively light for a handful of existing fuel-efficient offerings such as the Honda Fit, Ford Focus and Mazda CX-5, so prices on these models will likely remain closer to MSRP than Invoice. As inventory increases, we would expect to see shoppers continue to opt for new vehicles rather than a 1 to 2 year old used unit,” Gutierrez noted, stressing that even more new fuel-efficient rides will be hitting the lots in the new future.
Kbb.com analysts even went so far as to say “many one- and two-year-old used fuel-efficient vehicles are so expensive today that a comparable new vehicle may only be marginally more expensive.”
Gutierrez added: “Consumers have more options than ever before when it comes to fuel-efficient offerings, and many of these vehicles can be leased for less than $200 per month and a small down payment.
“Dealers must keep this in mind as they continue to pay more and more for used compacts at auction. As values rise, dealers will find it difficult to pass along the premium paid at auction to consumers,” he continued.
And this consumer shift towards new cars could be potentially worrisome since wholesale prices saw an upward spike this past March.
“Values at auctions across the country increased nearly 2 percent in March, primarily led by strong gains in values of fuel-efficient vehicles, which have been in high demand from rising gas prices,” said Gutierrez. “Seasonal influences also played a role in the market’s strength. March traditionally is one of the strongest months of the year for both new- and used-car sales, and this year was no exception.”
That said, KBB told Auto Remarketing that the spring wholesale-price high might soon reach its peak.
“We will likely see wholesale prices increase through the next 30 days or so, but if fuel prices continue to fall, prices may run out of steam as we head into June. Values peaked last year in mid-late June, and it looks as though the peak may arrive a bit sooner this year,” Gutierrez said.
“Dealers need to be cautious to not overstock on fuel-efficient inventory and to avoid getting caught in a bidding war. If values peak in the next 30 days or so, dealers need to be confident that they can sell anything purchased at auction quickly, to avoid taking a loss on any unsold inventory when values begin to decline,” he added.
Furthermore, strong sales and a pinched supply of used vehicles have only added to this seasonal pressure on values.
“Wholesale supply will likely remain low through the rest of 2012 and into 2013. Lease penetration was especially low from August 2008 through the middle of 2010, and we expect to see the number of leases coming back to auction remain low due to this drop in leasing activity. In addition, low sales volume from 2009 through the present will also play a role in wholesale supply,” Gutierrez explained.
“Since only 13.3, 10.4, 11.6 and 12.8 million vehicles were sold in 2008, 2009, 2010 and 2011, respectively, there are significantly fewer late-model vehicles on the road today than at any time in the previous 15-plus years. Sales have remained at 15 million units or above since the mid-90s, so the drop in sales from 2008 to 2011 will continue to keep used-vehicle supply low for several years to come,” he continued.
To further illustrate its points, Kbb.com provided the following chart showing the wholesale price surge for fuel-efficient models as consumers continue to lean towards gas sippers on the lots:
John Paul Strong
John Paul Strong combines his two decades of automotive marketing experience with a team of more than 140 professionals as owner and CEO of Strong Automotive Merchandising.