Last updated Wednesday, January 7, 2009
With regard to the wholesale market, 2008 will largely be remembered for the historic spike in fuel prices that created havoc within the gas guzzling market segments such as full-sized SUVs, pick-ups & cars. But, in fact, it was much more than fuel prices alone that caused such unprecedented market depreciation over the course of a year, and although gas guzzlers were hardest hit, all types of vehicles experienced unusual levels of decline in a year that never really saw demand catch up with supply.
The fact is that 2008 was going to be a difficult year for used vehicles prices even without the impact of severely inflated fuel prices on the market, although those now seemingly ridiculous price levels (gas is currently at almost 1/3 of what it was at its 2008 peak) were clearly responsible for the severity of the declines. But we’ve always said that the used vehicle market is almost totally a function of supply and demand, and even though supply was relatively low in many segments this past year, demand was even lower, and even those economical vehicles that rallied during the “fuel price crisis” experienced unusual declines over the course of the full year. For instance, a three-year old Toyota Corolla LE is worth $600 less this year than at year’s end last year. Comparable three-year old Nissan Altimas or Honda Accords are worth over a thousand dollars less than they were a year ago. Even the smaller SUVs which appreciated for a while this year due to the exaggerated fuel prices have retreated significantly. A four-year old Honda CRV LX is worth about $2000 less than a comparable model last year, and it’s the same for comparable Toyota RAV4’s.
So really, it is a lack of demand that has driven the market in 2008 and we suspect will continue to do so in 2009, though not to the same degree. After all, how cheap can vehicles get? There is a point, and I think we are pretty much there, where the fact that vehicles are so cheap creates its own demand. Anyone who has any money and drives a vehicle that has enough age on it to consider trading up has to be tempted by some of the bargains that are out there. I get a fair amount of phone calls from friends and acquaintances looking for help or advice on impending vehicle decisions, and I have noticed a definite increase in those calls recently as consumers are somehow getting the message that this is an awfully good time to buy a used vehicle.
The fact is, the automobile manufacturers have been selling around 16 million vehicles a year into a market that probably only has a real demand for about 13 or 14 million vehicles, and they have had to force those extra 2 or 3 million sales through the use of incentives and creative finance and lease options as they fought for market share. That produced an over supply of both new and used vehicles and the conditions for the weak vehicle market which we have been wrestling with for several years. It looks as if that is going to change somewhat and sales goals are going to become more realistic, as are incentives and finance terms if we’ve learned anything from our current economic crisis. That will mean fewer used vehicles coming back into the market and the prospect of a more stable market for the coming year.