Regardless of what weather forecasters or groundhogs say, all signs point to a hot spring for the used-vehicle market.
"I have no reason to believe — and I see no data that would support — anything but that," said Jonathan Banks, general manager of vehicle valuations at J.D. Power.
There's typically a pop in used-vehicle demand during tax season, as people put returns toward car or truck purchases. This year, more consumers have extra cash, after months of forgoing leisure spending, and many may have fresh government stimulus checks in their pockets soon. New-vehicle inventory remains constrained, and more Americans are getting vaccinated for COVID-19, sparking hopes for a return to some kind of normalcy in economic life.
It all has experts and observers expecting a strong spring.
"The consensus that we hold, without any exceptions, is that the second half of this first quarter, and at least the second quarter of this year, are going to be extraordinarily strong for used-vehicle sales," said Dale Pollak, Cox Automotive executive vice president and founder of vAuto, the inventory software company.
Not only do the economics look good, but heading into this spring, there appears to be more comfort with how the market is functioning. "I don't think it's going to be as disruptive, positive or negative, as it was last year," Pollak said.
Last year was "frickin' nuts," he said. Ahead of the spring selling season, in February 2020, analysts and dealers were prepared for a potentially record year for used-vehicle sales: All the signs were pointing in that direction. A month later, as the coronavirus pandemic began spreading and shuttering parts of the economy, it brought the used-vehicle market to a near halt.
But by May, as many restrictions eased, used-vehicle sales came roaring back. "And perhaps for a good six months thereafter, frickin' cars appreciated," Pollak said. "And cars are not appreciating assets."
Used-vehicle sales remained strong through the summer, and only cooled off later in the year, in line with seasonal patterns.
As the used-vehicle market rapidly recovered, a new challenge appeared: tight inventory.
"I didn't sleep when we were shut down in Michigan and I had $40 million in used-car inventory," Dave Katarski, COO of Feldman Automotive Group, said of the situation last spring.
"And of course, I came out of it, and in hindsight, I wish I would have had $80 million" in inventory.
Pollak said that Cox Automotive's Manheim auctions have about half of the vehicles they had last year at this time. Another sales surge this spring, which is likely, will lead to higher prices, and "we're already starting to see it," he said.
In January, wholesale used-vehicle prices were up 1.23 percent over December, and the Manheim Used Vehicle Value Index was up 15 percent over January 2020, Cox Automotive said.
For now, overall used-vehicle supply appears stable, according to Cox Automotive.
Based on data from vAuto, the used retail supply in mid-January was slightly above normal at 51 days and ended the month at 39 days. Normal supply is about 44 days. Wholesale supply was at 25 days at month's end, in line with the usual 23 days.
Banks, of J.D. Power, said he expects used-vehicle inventory to be less of an issue in 2021.
"It'll be better than last year," he said, pointing to an expected recovery in trade-ins and lease returns that were delayed in 2020. That will be partially offset by fewer rental vehicles coming back, so 1-year-old vehicles could be in short supply.
Overall, J.D. Power is predicting supply of 0- to 8-year-old vehicles to grow by about half a million this year over last.
Every segment has been hot, Banks said, so dealers do not need to be particularly selective when it comes to body style.
"You could have a mix of vehicles that doesn't necessarily have to be all trucks and SUVs," he said. "I think you should have a healthy mix of cars because they're selling, too."
Feldman's Katarksi said trucks and SUVs are already commanding steep prices at auction.
With wholesale prices on the rise, his group is getting inventory any way it can ahead of the prime spring selling season.
Said Katarski, "When they come off lease, we're buying almost everything we can, [and] certainly putting all the money in every trade we look at."
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February 06, 2021 at 12:00PM
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Forecast: Hot spring in used-vehicle market - Automotive News
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