From The Lanes

Believe Me, It’s Been Unbelievable!
By Ricky Beggs, VP, Managing Editor

For those of us who have been in the automotive industry for more than a few years, we have come to expect certain market trends at various times throughout the year. Another thing we have come to expect is that these expected trends will vary, or even not occur at all. So what are a few of these expectations that are no longer cast in stone?

1. Used cars and trucks are depreciating assets.
2. When used car values get to within a certain relationship to the monthly payment of a similar new vehicle, the consumer will always take the new model.
3. The fluctuating price of gas will have a direct effect on the value of both fuel efficient cars and less fuel efficient trucks and SUVs.
4. Supply and demand will be the controlling factor in the trending of used vehicle values.

Let’s take a review of the specifics of the above four mentioned items.

1. Needless to say, especially since mid-year 2008, we have seen some vehicles defy the norm and increase in value, month over month. If the Black Book numbers were based on formulas that considered vehicles to be consistent depreciating assets, instead of reporting the market values as it occurs in the auction settings, we wouldn’t be close to the current values today.
2. As we report rising values, the new-to-used cost relationship is starting to make the purchase of a new model more enticing. There are situations where the used monthly payment might be as close as $25 to $50 of what the new model would have been. Despite this, however, used car retail sales continue to be strong.
3. Gas prices are driving the strength in fuel efficient cars. But unlike previous years when gas prices spiked, trucks and SUVs have pretty much weathered the storm this year. With a more manageable supply of these units, a better economy where the service and building industries are seeing improved business opportunities, along with a slightly more confident consumer, demand is holding the line in used values.
4. Tight supply levels at the wholesale level are one of the main drivers of the market values we’ve seen. The earthquake in Japan has certainly caused some dealers to anticipate supplies of new vehicles to tighten as well, putting further demand pressure on late model used inventory.

Based on the last month of market activity, any data that is more than a week old might have you $1,800 to $2,400 behind the market - like the increase in value for 2009 and 2010 Prius models. Or this could be even worse, as some luxury models have trended in the opposite direction by as much as -$1,400 to -$2,900.

The bottom line is that it is important to stay in touch with the market by having information that actually reflects the current market. When unusual trends occur, as they are now, you just can’t afford to be wrong.

For timely updates on the industry, please view the weekly ‘Beggs on the Market' videos posted at www.BlackBookUSA.com. Follow us on Twitter and stay updated on important market changes as they're happening. As always, our editors and survey personnel look forward to seeing you on the auction lanes.

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