Auction Values Face Pressure Through 2009
LAS VEGAS — A glut of off-lease and fleet vehicles will keep auction volume high and resale values low through 2009, said Matt Traylen, a senior director at Automotive Lease Guide Inc., during a presentation at the Auto Finance Summit in early October.
Santa Barbara, Calif.-based ALG expects the supply of used vehicles to increase this year and next, and then drop for the next two.
“2009 will be a difficult year, but 2010 and beyond will look better,” Traylen predicted.
For now, “there’s not a lot of good news out there,” he said. There has been a shift toward traditional financing rather than leasing. Lessors including Chrysler Financial and Wells Fargo & Co. have exited the market. Financiers are offering more longer-term loans, low-APR deals, and incentives — factors that lower resale values. Additionally, the severity and frequency of losses are increasing, and insurance fraud is on the rise.
The surge in gas prices earlier this year contributed to the unexpected nosedive of truck and SUV values. Traylen offered this formula: Poor Economy + High Gas Prices = Disaster for the Industry.
The resale values of luxury vehicles have been hit especially hard. A 2005 Cadillac Escalade that fetched $24,000 at auction in January was selling for $15,800 in June — a 35% plunge in six months. By comparison, auction values shot up 34% from January to June for a 2005 Ford Focus, and 62% from February to May for a 2005 Toyota Prius, according to ALG.
As can be expected, ALG has predicted residual values for fuel-efficient midsize cars and mid-compacts to tick up over the next three years, to about 47% in 2011. Meanwhile, ALG estimates residuals for full-size sport-utility vehicles to drop to 39% next year, from 42% this year.
Another point Traylen made: fleet penetration has dropped “severely” this year as a result of the weak economy. “Normally, when we see fleet penetration come down, it increases used-vehicle prices,” Traylen said. “But now it’s an indicator that people aren’t renting cars at the airport.”
Year-to-date fleet penetration was 13.9%, compared with 17.6% in 2007 and 18% in 2006.
—Marcie Belles
