New Car Sales To Drive Used Prices Down

An Increase in new car sales could create lower used car prices for the first time since 2008, according to a forecast from ALG, the analytical division of TrueCar.com.

“The continued strength of new-car sales is increasing the availability of high-quality used cars as shoppers continue to trade in their old vehicles,” Larry Dominique, president of ALG and executive vice president at TrueCar, said in a press release. “Additionally, because of the popularity of short 24- and 36-month leases, the drought of used-car supply is already starting to subside. As a result, we expect a steady decline in used-vehicle prices.”

Used-car supply has been limited due to poor vehicle sales from 2008-2012, and the popularity of 2009’s Cash for Clunkers program, which took almost 700,000 vehicles off of the road, according to ALG. June saw the lowest number of used vehicles available for sale, driving prices up even further, according to ALG.

Analysts are predicting a shift in the trend, however, due to an influx of newer second-hand vehicles expected to soon flood the market, gradually lowering resale prices closer to where they were before 2008’s downturn.

By 2017, ALG forecasts the average new vehicle will retain 49.4%of its value after three years, in contrast to the 54.6% retention recorded for vehicles through June 2014. ALG also forecasts that the growing supply of used vehicles in the market should ease the industry back to a 46% residual average by 2019 – the same as it was before 2008.

“The lower residual values will create a greater gulf between used- and new-vehicle prices, which could steer more consumers to purchase used vehicles,” said Dominique in the release. “Consequently, we expect automakers to increase new-car incentives to keep up their current sales pace.”