J.D. Power Executive Analyst, 'Everyone needs to keep an eye on incentives'

NEW ORLEANS, Jan. 27, 2017 /PRNewswire/ -- In a joint press conference held at the 2017 National Automobile Dealers Association Convention and Expo, J.D. Power's vice president of vehicle analysis and analytics, Jonathan Banks, remarked, "Everyone needs to keep an eye on incentives." Known for his candid responses to reporters, Banks' statement addressed a question often asked by car shoppers and automotive industry insiders alike: What indicators exist that can signal where used vehicle prices are headed?

About Those Indicators
According to Banks, the supply of used vehicles, and increased new-vehicle incentives, contribute to depreciation (which is accelerating).

Supply

Led by a 33 percent increase in off-lease maturities, total used supply increased 13 percent in 2016. Lease volume will continue to spearhead used supply growth moving forward, but at a reduced pace.

Banks said, "We're looking at a surge of about 3,000,000 vehicles coming off their leases this year. With so many vehicles available in the used market, prices take a hit."

The car share of used supply will be 49 percent in 2017, which is much higher than the 39 percent share of new sales, but supply growth is slowing. Pickups and utilities will continue to experience large increases in supply.

Incentive Pricing

The December 2016 incentive spend per unit was 7 percent above December 2008's all-time record. Incentives as a percentage of the manufacturer suggested retail price (MSRP) is also up substantially, but remains marginally below December 2008 levels. J.D. Power analysis forecasts incentives to rise further moving forward.

Depreciation

"In a nutshell, luxury car prices are taking a beating and losing a ton of value in their first three years of use," said Banks. According to his presentation, the year's estimated decline would leave wholesale used vehicle prices 9 percent below 2014's all-time high, and 8 percent above 2007's pre-recession level.

In Summary
Mr. Banks closed out his remarks by noting the following:

• Ongoing increases in used supply and new vehicle incentives will continue to take a toll on used vehicle prices
• Less favorable credit conditions will increasingly depress used prices as well — the credit impact will worsen as time passes (interest rate increases, reduced appetite to extend and/or take on credit)
• Used car prices will continue to be softer than trucks in absolute terms due to the imbalance in used supply and overall demand
  • Depreciation increases from 20 percent in 2016 to 21 percent in 2017
• A decline in truck prices will accelerate due to large increases in supply and stiffening new market competition (utilities in particular)
  • Depreciation increases from 14 percent in 2016 to 18 percent in 2017

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Media Inquiries
Ryan Morris
Sr. Manager, Public Relations
J.D. Power Valuation Services
Phone: 1-202-826-4029
Email: ryan.morris@nada.com

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SOURCE J.D. Power