Given the trickle-down effect of a hot new-car market, Black Book is predicting that an additional 900,000 used vehicles will hit the market in 2012, calling this massive influx a “glaring reason” for the drop in used prices that has begun.
What’s more, if the new-car market gets even hotter in 2013, look for used prices to fall further, the company said.
Breaking down how the firm arrived at these conclusions, Black Book cited an outside prediction putting total new-vehicle sales for 2012 (including retail and non-retail) at 14.2 million units.
If the yearly sum hits this mark, it would be a 1.5 million-unit increase over last year.
Black Book’s Ricky Beggs predicts that 60 percent of these 1.5 million additional new-vehicle sales will have a trade-in attached. As such, that’s 900,000 additional used cars flowing into the market.
“Almost a million more used vehicles will be added to the industry this year as a result of more trade-ins on new-car sales,” stated Beggs. “This is a significant driver of lower prices, combined with additional rental cars being sold at auction and dealers preparing for the coming 2013 models.”
So just how big an impact does 900,000 additional used units make?
Consider the following statistics the firm listed: Three years ago, 750,000 units were taken out of the used-vehicle market thanks to the CARS program, officials noted. They added, “at the time, the auto community thought that would have a profound impact on the industry.”
Black Book further explained: “By comparison, this year the industry will be adding 900,000 vehicles into the system, which is a glaring reason why prices are falling.”
One can look at the analysis on the June 18 “Beggs on the Used Car Market”  video report to see just how widespread the decline has been.
Continuing a trend of softening prices, Beggs noted in the report that the week ending June 15 showed car segment prices dipping $31 on average, with only one of the segments showing an increase. The downturn in truck prices was even steeper ($60).
All told, Black Book adjusted an average of 2,550 vehicles each day that week.
“The very minute 10 percent of the adjustments that were increases in value during the week was the lowest level of positive changes since the week ending Aug. 26 with a 10-percent increasing level, as well,” Beggs highlighted.
Looking forward, next year will show continued declines in used pricing, the firm emphasized.
“Used-car prices will continue to slide well into next year assuming 2013 SAAR increases further,” it added.
On the sales front, there will likely be 4.43 million used sales churned out in June, according to data from CNW Research. This would be down from 4.49 million used sales in June 2011 and up from 4.31 million used sales in May, the firm noted.
CNW also shared what it is calling the “True Delivery Rate” for used sales, which it indicated is similar to the seasonally adjusted annualized rate often used by analysts in discussing new-vehicle sales.
The firm has pinpointed the True Delivery Rate for June at 40.19 million, down from 43.58 million in May.
Based on the data provided by CNW, the True Delivery Rate for each month of 2012 has stayed above 40 million, with the exception of March, when it dipped to 38.54 million.
On the new-car side, the latest forecast from J.D. Power and Associates’ Power Information Network and LMC Automotive indicates that for retail new-vehicle sales in particular, the expectation is for 994,800 sales this month, a 15-percent hike from June 2011 (upon adjusting for one more selling day in June 2012).
The resulting SAAR would be 11.9 million.
Overall, analysts are calling for 1.27 million total new-vehicle sales in June (retail and non-retail), which would be up 16 percent year-over-year. This would translate to a total SAAR of 13.9 million.
The firms explained that the projections for June are based on the first 17 selling days of the month.
As for the rest of 2012, LMC is holding its total new sales forecast at 14.5 million and keeping its retail projection at 11.6 million.
“Despite a rising level of uncertainty with the economic recovery, consumers remain resilient in their willingness to purchase new vehicles,” explained Jeff Schuster, senior vice president of forecasting at LMC Automotive.
“Concerns regarding the macro-economic environment and another potential summer slowdown have increased, but we expect the sales pace to remain strong and stable throughout the second half of the year,” he added.
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.