New passenger cars may be gathering dust on dealer lots spurring several automakers to severely reduce their portfolio of sedans, compacts and coupes—but the story is entirely different regarding used vehicles. Not only are sales of used passenger cars brisk and booming, but their values have grown in the past year, according to Cox Automotive, the Atlanta-based company that owns and operates leading wholesale used vehicle marketer Manheim and used vehicle shopping resources, Kelley Blue Book and Autotrader along with several dealer resources.
In its latest research, Cox reported used vehicle sales increased 3% last month, over July, 2017, while new vehicle sales declined by 3%. The privately-held company does not release specific sales figures, but Cox reports demand for used passenger cars is high even as prices increase overall. That’s the case particularly for compact and midsize cars, which Cox explains “is a function of demand from consumers (affordability plus consumers that genuinely want a car), supply (CUV tsunami eating away car share in the wholesale market) plus the uncertainty factor of tariffs.”
Edmunds.com attributes rising fuel prices and affordability as two other factors propping up used passenger car sales. In its Used Car Report for the first quarter of this year, Edmunds points out that due to high fuel prices during that period, “some consumers are beginning to rethink making the switch from a car to an SUV or truck. Increased demand for compact cars and subcompact cars, the most frugal of all segments, is creating a shift in market dynamics, a rise in values, and a decrease in the days-to-turn.” The average price of gasoline as of Aug. 9 was $2.869 per gallon according to the AAA further sparking interest in more fuel-efficient vehicles, with Edmunds pointing out, “price-sensitive consumers who are switching now toward smaller car segments in anticipation of increasing fuel costs are benefiting from cars' lower price point.”
True, passenger cars generally cost less than pickup trucks or utility vehicles, but their prices are heading upward.
Indeed, used compact and midsize cars are seeing the greatest increases in values with midsize cars outperforming the overall market by 3% in July up from 0.8% in June, according to the Cox Automotive Manheim Used Vehicle Value Index. Breaking it down further, while overall used vehicle values increased 5.1% last month over July, 2017, Cox reports midsize vehicles led the way with a 7.2% spike in values, compact cars were up 5.2% and luxury vehicles improved by just 2%. On the light truck and utility side, the values for the combined SUV/CUV segment were up 4.5%, vans up 3.4% and pickup truck values increased 3.3%.
Despite rising used vehicle prices, they remain an attractive choice for some consumers. Edmunds reports that nearly 4 million vehicles were leased in 2015 and began returning to dealer lots this year. Budget-minded shoppers are snapping them up. Nearly a quarter of what Edmunds terms “used franchise sales” are vehicles that are only three years old.
The supply of used vehicles, including passenger cars, remains high, but will moderate as Cox reports the “growth in off-lease maturities is decelerating." The number of off-lease vehicles grew by 1.3 million units between 2014 and 2017, from 2.2 million to 3.5 million, but Cox now expects an increase of only 400-thousand units by the end of this year to 3.9 million and an additional 200-thousand in 2019 to 4.1 million before an expected fall off each year from 2020 to 2022 bottoming at 3.6 million.
That's still plenty of inventory, but if the current new car market continues to skew as heavily towards utilities and pickup trucks, consumers looking for relatively inexpensive, fuel-efficient rides are likely to be faced with a dwindling supply of used passenger cars in the future.
