Yahoo Finance 
Surge in Supply of Off-Lease Cars to Impact Market
This year will mark the biggest jump in the supply of used vehicles in the U.S. market in eight years due to a dramatic increase in off-lease maturities, according to experts from NADA Used Car Guide, a division of J.D. Power.
The surge in supply will offer consumers more choices of late models in nearly all segments at lower prices. Most of the off-lease vehicles are 3-year-old models, which will also offer retailers a chance to sell and lease quality certified pre-owed (CPO) vehicles that require less service and can be more lucrative, according to an outlook from two experts at NADA Used Car Guide—Jonathan Banks, vice president of vehicle analysis and analytics, and Laurence Dixon, senior manager of market intelligence. Through the first quarter of 2016, used-vehicle prices and residual values began to decline as new-vehicle sales moderated.
From a U.S. economic perspective, modest growth, low unemployment, and continued lower gasoline prices have benefitted the market. However, NADA analysts point out that the elevated used-vehicle supply, slightly less favorable credit conditions, and an increase in manufacturer’s incentives will be challenging to the auto market.
Some highlights from analysis by NADA Used Car Guide’s team that incorporates Power Information Network® (PIN) from J.D. Power data are summarized:
Major Changes in the Past Five Years:
Prices for used vehicles (up to 8 years old) have been very strong for the past five years, with a low supply until recently, and favorable credit terms.
Since the recessionary year of 2007 through 2015, NADA’s Used Car Guide Wholesale Used Vehicle Price index climbed 18%.
Outlook for the Used-Vehicle Market in 2016 and Future:
This year, the influx of off-lease vehicles—principally 3-year-old models—coming back to market will rise by 800,000 units, the highest level since 2008.
A major reason for the higher supply of off-lease vehicles is due to the past few years’ increase in leasing of new vehicles—accelerating to nearly 32% of deliveries in the first quarter vs. 28% a year ago, based on PIN data.
Used-Vehicle Segments that share Biggest Changes:
Off-lease maturities for two of the most popular sport utility segments will increase significantly. Supplies of off-lease compact SUVs will climb 59% from supplies in 2015, while off-lease midsize SUVs will rise by 48% from volumes in 2015.
Compact cars coming off lease this year vs. last year will rise by 38%, and volumes of off-lease midsize cars will grow 17% from 2015.
Premium segment off-lease maturities will also rise in double digits, although not as much as for mass-market segments. An exception: small premium SUV maturities will nearly triple this year (+194%).
Credit, Gasoline, Incentive Factors in the Market:
Credit conditions will remain stable but auto loan interest rates are projected to increase gradually as the year progresses—a 48-month new car loan APR of 4.41% in 2016 rises from 4.24% in 2015.
Gasoline prices remain low, according to the U.S. Energy Department—averaging $2 per gallon vs. $2.43 per gallon in 2015, positively affecting used-truck prices, but negatively impacting car prices.
Post-Great Recession new-vehicle incentive spending rose to its highest level in 2015 and will continue to rise, placing pressure on used-vehicle prices. Incentives rose to 9.5% of MSRP in 2016, vs. 8.7% of MSRP in 2015, according to J.D. Power.
What about Residuals and Depreciation?
As the supply of used vehicles increases, NADA Used Car Guide’s Used Vehicle Price Index (up to 8-year-old vehicles) dips from 5%-6% in 2016 vs. 2015.
With the price decline, vehicle depreciation is expected to increase from 14% in 2015 to 17.6% in 2016.
Car segments will fall less than trucks and utilities.
In summary, NADA Used Car Guide experts and J.D. Power auto forecasting partner LMC Automotive predict that new-vehicle sales will continue to edge up from 2015, but will rely more heavily on fleet deliveries. Growth will be driven by leasing, which will become more expensive, both for manufacturers and consumers, as prices and retention falls.
Although leasing will require careful attention, NADA experts say that on the used-vehicle side, consumers and retailers will benefit from leasing CPO vehicles in the future. Millennials are not averse to leasing, PIN data indicates. There likely will be great deals on weaker segments—subcompact, compact, and midsize cars—in addition to hybrids and plug-in hybrids other than Tesla models, which have exceptional retained values.
Abstract:
This year will mark the biggest jump in the supply of used vehicles in the U.S. market in eight years due to a dramatic increase in off-lease maturities, according to experts from NADA Used Car Guide, a division of J.D. Power.
Check this if this is NOT an Articles Listing Page:
New or Used:
Used
