By Ray Birch
LAWRENCEVILLE, Ga.—Used car values are surprisingly stable, and vehicle history reports are once again key to determining value, Black Book said, citing key trends lenders should be watching as 2024 winds down.
The stability in used vehicle values that Black Book is seeing now is uncharacteristic for the season, said Laura Wehunt, VP of analytics at Black Book.
“This time of year we typically see used values depreciating,” Wehunt said. “We usually see depreciation at about one quarter percent per week throughout the fall season.”
Then, later in the fourth quarter, depreciation normally increases further, Wehunt added.
“For example, 2019 pre-pandemic…The fourth quarter experienced 10% depreciation in that period alone,” she said. “That whole year we had 16.8% depreciation. It’s very common in the second-half of the year, particularly in the fourth quarter, to have very high depreciation.”
Laura Wehunt
A Different Story
Right now, it’s a much different story, Wehunt told CUToday.info in mid-October. “We have almost four weeks with the overall market reporting stability. We actually saw small increases, particularly in any mainstream segment. So, compact cars, mid-size crossovers, small pickups and minivans all had a lot of strength. It really all goes into that affordability piece.”
The price stability is being driven by the fact that there still is not a great deal of volume in the overall auto market.
“About three years ago was the low point in the market for new car sales,” Wehunt said. “We didn't have new leasing going on because we didn't have the production. Used values were sky high—some cars were selling for more than their new models. It was a crazy time.”
Fast forward three years later and now used inventory is building.
“We're still seeing that normal depreciation in the luxury segment—your full-size luxury vehicles, your premium sporty cars, those higher-end vehicles like Mercedes and Lexus,” she said.
The luxury vehicles have more room to fall, with their higher prices, noted Mark Simpson, manager of Black Book’s U.S. valuation team.
“We're also seeing 2024 used cars coming back to the market. Those people are taking a larger depreciation than they typically would because inventory is larger, mark said. “We have a lot of new 24 inventory still sitting on dealer lots with higher incentives. Now you can get a really get a great deal on 2024s.”
Credit union rates are highly competitive now, especially on used cars, Simpson said.
Automakers Putting More On The Hood
“Incentives are increasing, but new car manufacturer suggested retail prices are going up,” he explained. “At the height of the pandemic, we weren't seeing manufacturers giving any cash on the hood. They were not incentivizing rates. None of that was going on. We're seeing all of that come back. In some cases some OEMs are doing a lot more.”
What should lenders be thinking about?
“I would tell lenders to be careful and make sure you're accurately valuing the asset that you're providing a loan,” Simpson said. “That means looking at what options the vehicle has, what is the history of the vehicle. We're seeing this absolutely plays a pivotal part in the valuation of the vehicle—those clean history vehicles with low mileage, those are still doing incredibly well. Again, we're back to there not being as many good quality used vehicles on the market.”
Wehunt said Black Book is seeing more used vehicles hit the market with not “sparkly clean” histories.
“You want to be very careful, because we are seeing a return to pre-pandemic levels of the impact that the history has on the vehicles valuation,” she said. “During the height of the pandemic, when we had no vehicles and everything was going crazy, even if the vehicle a lemon-law buyback, it had structural damage or some of these things that can typically hurt the vehicle’s value, we weren't seeing it have as big of an impact on price then, but we are now.”