ATLANTA-Expect the auto auction lanes to be fuller this year, but that won't mean used car values will take a nosedive.
That's according to Tom Webb, chief economist at Manheim, who told Credit Union Journal the additional wholesale used car volume should not be a warning sign to lenders that the bottom may be falling out of the used car market. Analysts have shared concerns that the used car value bubble may burst this year (Credit Union Journal, May 21, June 4).
"Yes, used vehicle values have been very strong for several years," said Webb, acknowledging the economy and resulting greater demand for used cars has inflated used values over the past four years. "We anticipate used car values will ease somewhat this year but that will be by a modest amount. By historical standards we expect that used values and residuals will remain high."
A large number of trade-ins from rising new car sales isn't the primary reason more cars are showing up at the auto auction lanes, explained Webb. The higher numbers are the result of a wave of leases being turned in and rental cars reaching their resale point. "Certainly the recovery in new car sales has been stronger than the overall economy. But new car sales were slightly north of 15 million units last year and maybe 15.5 million this year-that pace is not out of line with underlying demand."
What should also keep used values from plummeting is the growing availability of used car financing, particularly for low credit scores, that's keeping used inventory down, said Webb. "The retail financing environment has been one of the drivers of the used car market."
The $8,000-$10,000 used car price range should hold its value best, said Webb, citing short supply. Webb, though, questions the value of used cars with a higher price tag due to many of those cars coming off leases. "So late-model European luxury vehicles, $25,000 and up, and mainstream cars $17,000 and higher."
Webb's final advice: Remain vigilant because the volatility of used prices is clearly on the downside. "It's hard to envision any scenario where the values run up any higher."