Data from the first two months of the year prompted J.D. Power Valuation Services to revise its wholesale price forecast for 2019.
And depending on the state of your dealership, the updated prediction could be valuable information to help sharpen your used-car strategy.
“With January and February’s weaker-than-expected performances, 2019’s outlook has worsened,” J.D. Power Valuation Services executive analyst David Paris said in a news release. “As a result, prices are forecast to fall by around 3 percent.
“Increasing levels of used supply, along with more volatile credit conditions and increasing gasoline prices, are expected to apply downward pressure on the used side of the market,” Paris continued.
The used-vehicle market continued its sluggish start to the new year, and as a result the J.D. Power Valuation Services’ Seasonally Adjusted Used Vehicle Price Index declined 1.3 points in February relative to January to 116.1.
Analysts explained in the latest installment of Guidelines that February’s decline marked the sixth consecutive month of declines in the used market and is “a trend we should expect to see more of throughout the course of 2019 as used-vehicle prices are expected to decline relative to 2018.”
J.D. Power Valuation Services elaborated about reasons for wholesale price weakness so far this year.
“In January the industry faced challenges because of extreme winter weather conditions as well as the 35-day government shutdown,” analysts said . “The used market typically heats up in February; however, the month faced its own unique obstacles which suppressed the growth we normally see in used-vehicle prices.”
J.D. Power Valuation Services then drilled deeper into another attention-getting factor — concerns over tax law changes that have led to smaller refunds for many Americans as both the new- and used-vehicle markets benefit from tax refund season.
According to IRS Filing Season Statistics through the week ending Feb. 15, J.D. Power Valuation Services noted the total number of refunds issued was down 26.5 percent, while the average refund amount was down 16.7 percent relative to the same period in 2018.
However, the refund situation improved over the second half of the month. Through the week ending March 1, J.D. Power Valuation Services pointed out the total number of refunds issued increased but was still down 4.2 percent. However, the average refund amount reached $3,068, or a 0.7 percent improvement relative to the same period in 2018.
“During this time of the year, early filers begin receiving their federal refunds, which can be applied as healthy down payments for a new- or used-vehicle purchase. This was not the case through the first half of February,” analysts said in Guidelines.
“It does take time for taxpayers to receive and recognize their individual refunds; ultimately the improvement was likely too late to help the February’s result,” they continued.
Wholesale price moves by segment
J.D. Power Valuation Services continued its latest edition of Guidelines by taking a closer look at wholesale price moves at the segment level.
Analysts discovered price losses at the mainstream segment level were worse than expected and strayed from typical February results. They noted large utility prices were the softest on the mainstream side as declines reached 2.6 percent or nearly 2 percentage points worse than the segment’s previous five-year February average.
Elsewhere, J.D. Power Valuation Services noticed compact and mid-size utility segments turned in slightly better performances as prices declined by respective figures of 1.6 percent and 1.7 percent. Still the figures were counter to what’s happened during the previous five years as analysts pointed out combined prices for these segments appreciated by an average of around 0.5 percent in February.
Also of note, J.D. Power Valuation Services spotted that subcompact, compact and midsize car prices declined by a combined average of 1.4 percent in February. Typically, these segments generate price increases by 1 percent to 1.5 percent in the February period due to benefits associated with federal tax refunds, according to Guidelines.
On to the premium side of the market, J.D. Power Valuation Services determined losses were on average greater than their mainstream counterparts and fell within a range of 2.2 percent to 4.7 percent.
Analysts said luxury large utility segment prices experienced the biggest decline on both the mainstream and luxury sides of the market in February. The report noted wholesale prices for the group declined by an average of 4.7 percent, which was the largest decline for the segment on record and roughly 3 percentage points worse than the previous five-year February average.
J.D. Power Valuation Services went on to mention luxury compact car and luxury midsize car prices were also more depressed than typical for the month. Over the past 5 years, analysts said the pair has experienced losses of roughly 1 percent during February.