3 Apr 18

Residual values poised for positive 2018 in USA

A comprehensive new report forecasts strong and stable residual value performance in the US used car market in 2018.

The 2018 Cox Automotive Used Car Market Report & Outlook predicts growth in used car sales this year on the back of a robust US economy. It expects the used car market to reach 39.5 million sales in 2018, up from 39.3 million in 2017.

The report warns, however, that rising interest rates and a high supply of desirable de-fleeted vehicles could damage new car sales. It forecasts an annual new car market of 16.7million units in 2018, down slightly on last year’s total of 17.1 million, which itself was 2% lower than the record peak of 2015.

Sandy Schwartz, president of Cox Automotive, said, “We expect used-car sales to climb even higher in 2018 and new-car sales to experience another minor dip from their soaring heights.”

Many of the key underlying economic indicators in the US economy are strong. Unemployment has fallen to a 17-year low, the net worth of households grew by 7% in 2017 thanks to stock market gains and higher house prices, GDP is rising, and at the end of 2017 President Trump signed a $1.5 trillion tax cut, which is expected to fuel consumer demand.

However, fears of inflation have led the Federal Reserve Bank to indicate it will increase short-term interest rates three times in 2018, and Cox Automotive forecasts that access to credit will tighten this year.

On the plus side, the model mix of vehicles returning to the new car market will improve this year as both fleets and leasing companies have increased their share of SUVs, CUVs (crossover utility vehicles) and pickups in recent years, the products that consumers are most interested in. Previously, leasing and fleet companies were out of kilter with the overall market, accounting for a much higher proportion of cars, but their change of strategy should pay residual value dividends - adjusted wholesale prices for pickups rose nearly 9.8% in 2017, compared to an overall market up about 6%, while compact car values rose only 3%. Prices were particularly high in 2017 due to hurricanes Harvey and Irma, which destroyed hundreds of thousands of cars and led to an unanticipated 350,000 used vehicle sales. The increased demand pushed up prices in September and October.

Cox Automotive now forecasts that a ready supply of used SUVs, CUVs and pickups in good condition this year will tempt potential new car buyers into the used vehicle market instead. It “expects that a couple hundred thousand new vehicle buyers, primarily from the small to mid-sized car segments, will be ‘lost’ to the used market.”

Download the report here.

Authored by: Jonathan Manning