Compared to recent years, used-vehicle values were unusually strong in the third quarter thanks to Hurricane Harvey, and that should continue to some degree over the last few months of 2017, says Kelley Book Book.
As should demand for replacement vehicles, particularly the pre-owned variety.
One- to 3-year-old vehicles at the end of Q3 were retaining 56 percent of their value (auction value divided by MSRP), KBB said in its latest Blue Book Market Report. A year ago, their retention was at 55 percent.
Through nine months, year-to-date used-car depreciation is at 3.7 percent. In the same period of 2016, it was nearly two-and-a-half times as steep (9.2 percent), according to Kelley Book, which said through three quarters of 2015, it had reached 6.7 percent.
“Value retention may buck typical trends and remain strong throughout the rest of the year, as consumers in areas impacted by Hurricane Harvey continue to drive vehicle demand,” KBB analyst Sean Foyil said in the report.
Retail demand climbs
And that demand could reach into the hundreds of thousands. It’s anticipated that about 400,000 vehicles will need to be replaced, and somewhere in the neighborhood of two-thirds of those replacements will be used, the report indicates, citing Cox Automotive chief economist Jonathan Smoke.
Through 10 months of the year, used-vehicle retail sales have continued tracking at an annual pace near 39 million units, according to a sales forecast released by Edmunds last week. The company was projecting 3.2 million used-car sales for October, which would be even with September.
The seasonally adjusted annualized rate for used sales in October would be 38.9 million units, up slightly from the 38.8 million-unit annual pace last month, Edmunds said.
Earlier, Cox Automotive pegged the September used-car SAAR at 40.4 million, up from 38.1 million in August.
Through nine months of the year, used retail sales were beating year-ago figures by 2 percent, a Cox Automotive spokesperson said in an email earlier this month. The company is forecasting 39.1 million used retail sales for full-year 2017, he said.
In an analysis, Cox Automotive estimates that there was an 8-percent year-over-year hike for used-car sales in September.
Additionally, Cox Automotive’s data shows a 5-percent increase year-to-date in sales of used cars less than 4 years old through September — and this group has the biggest share of the pre-owned market, the analysis indicates.
Auction values rise
Meanwhile, the approximately 600,000 vehicles severely damaged or scrapped from Harvey are driving auction value strength, KBB said.
The 1.2-percent decline in the third quarter was less than a third of the declines seen in Q3 2016 and Q3 2015, when values dipped 4.5 percent. What’s more, 1- to 3-year-old auction values at the end of Q3 are up 4.8 percent compared to end of Q3 2016.
Auction values should pick up the pace of decline in Q4. However, the drop-off would still be relatively modest, given the replacement demand, KBB said. And considering what was expected at the beginning of the year.
“The lack of normal depreciation in used-vehicle values this summer has meant that the typical curve that peaks in the spring and then declines throughout the rest of the year has only seen a moderate decline,” said Smoke, the Cox Automotive chief economist, in a quarterly call with analysts and the media on Oct. 6.
“Note also that 2017 didn’t see a rise in the spring similar to prior years,” he said. “This is likely a result of auction volumes peaking in the first quarter, while demand was not as brisk as usual due to delayed task refunds.
“So the year started off looking bleak, if you gauged the world through the lens of retention values,” Smoke said. “But now it looks a heck of a lot better.”
Such strength was also reflected in a Black Book Market Insights Report from a week ago, which found that this autumn, the pattern in used-car values is anything but typical.
Used vehicles continue to hold their values better than what’s expected for this time of year, according to Black Book, which said trucks remain ahead of their car counterparts when it comes to price retention.
The latest Black Book Market Insights report indicates that car segments depreciated 0.38 percent during the week ending Oct. 20. That was on par with the four weeks prior, when depreciation averaged 0.37 percent.
Trucks, with 0.25 percent depreciation the week ending Oct. 20, are holding their values better than cars, but their depreciation did climb. In the prior four weeks, average depreciation for trucks was 0.20 percent.
“Depreciation levels remain better than typical fall-season trends. Truck segments continue to perform better than cars in weekly depreciation,” said Anil Goyal, the company’s senior vice president of automotive valuation and analytics, in the report.