Industry forecasts predict that as many as 3 million vehicles will be coming off lease during 2016, which is about a third more than last year. According to Manheim Consulting, it is the biggest crop of returning vehicles since 2003 and as a result, manufacturers are revving up their Certified Pre-Owned programs to handle the influx of vehicles.
Bill Fay, the Toyota division’s vice president and general manager, said the company will be ramping up its CPO program to move a record 375,000 vehicles this year, up from last year’s 265,000. These pre-owned cars “become a great entry to the Toyota brand.” And the customers turning in those leased vehicles are prime prospects to buy or lease another Toyota.
More important, the greater number of vehicles will also mean that late model used vehicle prices should be dropping. The 40-percent decline in new vehicle sales during 2008-2009 meant fewer cars coming off lease or returning to the market as trade-ins, which resulted in higher used vehicle prices. That in turn helped fuel the robust new car market recovery, since the step up from these late model used units to a new car wasn’t all that great. According to the Manheim Used Vehicle Value Index, used vehicle prices hit 125.7 just last December, its highest level since July 2011. While it peaked, there hasn’t been much movement since. That benchmark index climbed less than 2 percent last year, indicating that used vehicle prices have stabilized and now, with a glut of vehicles about to hit the market, will start to decline.
This move should trigger a buyer’s market in 2016 as consumers will have an ample supply of late-model used vehicles to choose from. But also, it will put pressure on new vehicle manufacturers to hold the line on prices or offer more incentives if they want to maintain record sales levels.
“We saw many of the car segments contracting last year and it could cause some manufacturers to sweeten their incentives in order to hang onto their volumes,” said Eric Ibara, director of residual value consulting at Kelley Blue Book. “This couldn’t come at a worse time for some of these manufacturers as their off-lease volume is also poised to grow. More vehicles available to be sold as CPO could also add pressure to new car sales.”
Transaction prices pass peak
The average new car transaction price hit $34,112 last month, a 2.8-percent or $919 increase over a year earlier, according to Kelley Blue Book data, but dropped from December’s peak by 1.6 percent or $553.
Still the year-over-year increase is due to the popularity of larger, more costly vehicles. “Growing transaction prices (ATP) reflect growing consumer preference in trucks and SUVs,” said KBB analyst Tim Fleming. “Consideration in these segments also is helped by the country’s lowest gas prices since 2009, a trend which is expected to last through year-end. Meanwhile, transaction prices for full-size trucks increased 5.9 percent and 7.9 percent for mid-size trucks.”
A case in point is the 4.5-percent increase in average transaction prices for vehicles offered by Fiat Chrysler Automobiles, largely on the strength of Dodge and Ram sales. The hot-selling Charger and Challenger, especially the premium-priced Hellcat versions, bumped the division’s ATP by 6.5 percent while Ram was up 6.1 percent on its pickup and ProMaster van series. Tim Kuniskis, head of Chrysler/Dodge/Ram sales, said that in 2015, Dodge sold the most Challengers in its history, eclipsing the previous calendar year high set back in 1970 with the original.
The 7.9-percent increase in midsize truck transaction prices were fueled by the hot-selling Chevrolet Colorado/GMC Canyon duo as well as Toyota’s refreshed Tacoma, which saw its ATP jump 10 percent to $32,830. The Volkswagen diesel emission scandal is reflected in that brand’s 4.5-percent drop in ATP. “Four months after the diesel emissions issue, Volkswagen Group continues to face challenges in the market and transaction prices took a hit in January,” said Fleming. “Volkswagen’s most popular model, the Jetta, was down 7.9 percent to $20,900.”
EV/Hybrids worth less
Dropping fuel prices are having an impact not just on sales of new EVs and hybrids, which saw a 1.4-percent drop in transaction prices December to January, but also in their value on the used vehicle market. According to Kelley Blue Book data, the residual (resale) value of 2016 hybrid and electric vehicles sold now will be 29.5 percent three years from now. That’s 4.1 percent lower than projections from a year ago.
With predictions of fuel prices stabilizing in the $2 to $3 range over the next five years, resale values on hybrids and EVs are expected to remain soft, staying below the 30 percent level for the foreseeable future. Jonathan Banks, a NADA Used Car Guide analyst told Automotive News that depreciation rates for hybrid and electric vehicles ranged between 25 and 35 percent last year, about twice the 16.5 percent average for conventional cars and trucks.
Chrysler 200 production suspended
FCA earlier announced it would not build a next generation Chrysler 200 or Dodge Dart and look to outsource midsize and compact sedan models from other makers, and now comes news that the 200’s assembly plant has been shut down for 6 weeks to adjust inventories. According to Automotive News, Chrysler has a 148-day supply of the vehicle, or nearly 50,000 on the ground. Supplies shot up from the previous 96-day supply when Chrysler removed the model from a stair-step incentive program that required a certain level of 200 sales in order to receive factory rewards.
While those incentives are no more, Chrysler is still offering rebates of up to $2,750 on the car and with so many in stock, smart shoppers should be in a strong position to drive a great deal on both 2015 and 2016 Chrysler 200s in stock. Currently, a 2016 Chrysler 200 Limited is shown with a Kelley Blue Book Fair Purchase Price Range of $23,098-$24,033 on an MSRP of $25,140.
The rundown
The first high-volume family sedan to come from China is the 2016 Volvo S60 T5 Inscription. It’s both longer and loaded and every bit a Volvo.
If you’re looking for a viable alternative to a mid-size family car in a slightly smaller package, you might consider the 2017 Hyundai Elantra. We drove the revamped sedan and came away impressed.
Speaking of midsize sedans, a drive of the 2016 Kia Optima EX reveals that a lower trim level isn’t necessarily a step down.
In the market for a family car? Kelley Blue Book has announced the 16 Best Family Cars for 2016.
