Last updated Monday, June 25, 2012

Changes Throughout the Market
The past couple of weeks, early June, have definitely seen a declining demand for used vehicles and subsequently a declining market. Some segments have been hit harder than others, but none have escaped unscathed.

Of course that is not unusual for this time of year but because we have experienced an unusually, certainly in our recent history, extended period of strength the current speed bump may seem particularly steep.

The exception is exceptional vehicles. They still bring premium prices, but requirements to join the exceptional club have escalated some. Dealers are a little more selective about what vehicles they are willing to chase. Beyond low mileage and high levels of equipment, they may now require certain color combinations. Or the mileage parameters to entice dealers into chasing a vehicle may have stiffened some. It just takes a bit more exceptionality to bring the big bucks these days.

That means the more ordinary vehicles are that much more difficult. Supply seems to be relatively stable, but demand has definitely diminished. Most dealers we speak with complain about a lack of floor traffic and there is little one can do to counteract that. That means there is very little need for fresh inventory resulting in a highly selective market.

Late-Model Vehicles Hit Hard
While all segments have been affected, some have been more severely impacted than others. Very late model vehicles in general have been hard hit. There had been high demand for new and late model used in recent months and prices had held up well until recently. New inventory was often scarce and late model used became likely alternatives. That appears to be past tense as new inventory has increased at the same time as demand has decreased sharply. Particularly impacted have been those Japanese manufacturers whose inventories were scarce due to supply problems. Their new vehicle inventory has recently normalized and their late model used that had been unusually strong are fast on their way to becoming unusually weak.

The other segment that seems to have been most impacted is European and Asian luxury vehicles, both cars and trucks. Not unusually, most affected are the higher-end vehicles. Things like Lexus LX570s and Mercedes GL series have taken big hits of late. Even the very popular Lexus RX series have softened dramatically. A seemingly endless supply of 2010 models that have done remarkably well for the longest time are finally experiencing some headwinds.

As expected, convertibles and sport coupes are on the leading edge of the downturn. But the reality is that all segments are impacted and we think will continue to be impacted throughout the summer. The economic numbers have become less encouraging, consumer confidence is wavering, and it is a presidential election year. For all those reasons and more we expect the summer market to be less than stellar. We think we may experience the bulk of the erosion in the short term and that the remainder of the slippery slope may be gradual but persistent.

Dan Galves