Efficient Lending Could Grow Used Market 30%, Economist Says

DALLAS — Used car sales could jump to 52 million units a year, up from 40 million in 2016 — a 30% increase — if lenders and dealers are able to drive more efficiency into the lending process, Tom Webb, Manheim Consulting’s chief economist, said during a presentation at the Nonprime Auto Financing Conference.  

“Bottom line, there is more growth opportunity on the used vehicle side than there is on the new,” he said. “There are millions of households everyday that would like to trade up to something a little better, as long as there is an affordable monthly payment, and they can do so in an easy manner. So, to the extent we can make our system more efficient, we will get more transactions.”

New vehicle lease penetration hit a “peak” in 2016, with 3.4 million lease units last year, he said, which means used car values will continue to depreciate until off-lease volume peaks in 2019. 

“In the first half of last year we had double digit growth of new lease originations. First quarter this year, we’re down 3%, down even more in April, and I expect the same for May,” Webb said. “At some point we’ll reach a little bit of a tipping point, but we haven’t gotten there yet.”

That leasing growth was pushed in large part by new vehicle production, Webb said. However, the industry doesn’t need as many vehicles as it’s producing, he added. The housing market is expanding at roughly 1.5 million household formations a year, and since most have two cars, that figure could land at 3 million vehicles a year, he estimated.

“We know that we don’t need to be adding 6 million vehicles, as we did last year,” he said. “That’s excessive and unsustainable.”