Last updated Tuesday, October 18, 2005
It looks like October will be just the latest edition of what has been a strange year in the used vehicle wholesale marketplace. A market that is typically in free-fall at this time of year is, with a couple of exceptions, relatively stable and retreating slowly if at all. The only reasonable explanation for these unusual circumstances is the continuing lack of sufficient inventory we have been experiencing throughout most of this year. The combination of successful campaigns to decrease lease penetration in ’02 and ’03 and fewer actual trade-ins in 2005 have made vehicles, and in particular good vehicles with good miles, scarce and the result has been a long, strong market for many types of vehicles this year.
The exceptions have been the larger, gas-guzzling SUV segment – Suburbans, Yukons, Tahoes, Expeditions, Excursions, Escalades, Hummers, Land Cruisers, LX470s, Sequoias, and the like - and the high end of the luxury car segment – Lexus LSs, Mercedes S-class, BMW 7-series, Jaguar XJs, etc. - both of which have experienced higher volume in general and greater resistance recently as a result of the increase in gasoline prices. There is generally no shortage of those vehicles and relatively little demand, and they have been eroding steadily for several months and more rapidly recently. With respect to the SUVs in particular, we have reached the point where lowering the book is not always the answer because no matter what the book is, buyers want to own the vehicle for significantly less. If the book is $20,000, they want to own it for $18,000. If the book were $18,000, they would want to own it for $16,000.
The flip side of that market is the smaller, more economical vehicle segment, and that group - the Accords, Civics, Camrys, Corollas, Cobalts, Focuses, and their ilk – remains stronger than normal for this time of year and probably will remain so for the near future. We don’t see them taking the same kind of dive that they have experienced in years past unless there is an influx into the market, and we don’t know of any reason to expect that. They should continue to be relatively scarce and desirable.
Another continuing trend is the large gap between the car with some combination of factors that makes it stand out from the rest - whether that be low miles or very high miles combined with good condition, or color, or navigation where it is a rare feature, or something else that makes it unique – and the ordinary vehicle that is relatively common in its virtues or lack thereof. That gap is, and has been, unusually large for some time and has made our task as a guidebook more difficult.
We expect the market to pretty much continue as is in the short term and think that the normal market bottom that we usually experience over the next two months will not be as severe as it often is except in the full-size SUV and higher end luxury segments.