March 2008, Automotive Fleet - Cover Story
Economic Slowdown Causes Fleet Resale Values to Decline
By Mike Antich & Lauren Colin
High Fuel Costs Impact Resale
For the past several years, the high cost of fuel has negatively impacted resale values for less fuel-efficient vehicles. Particularly hard hit have been full-size SUVs, especially if they are not configured appropriately to the market in which they are being sold, such as two-wheel-drive models in Snow Belt states. On average, resale values of SUVs have declined 8 percent. However, the impact of higher fuel prices has been a two-edged sword, benefiting more fuel-efficient models such as four-cylinder compact sedans and compact SUVs.
"Fuel-efficient vehicles sell well. Compacts have always been the silver lining in today’s market because they have a higher fuel economy," said Graham.
Mid-size sedans, which represent the bulk of fleet vehicles sold at auction, continue to sell briskly, if priced to market conditions. On average, resale values for intermediate sedans are down 8 percent compared to same time last year.
Another segment experiencing a sales downturn is the minivan market. "Consumer preferences are changing when it comes to vehicle purchases. Consumers no longer want to buy the minivan when there are a number of trendier vehicles in the resale market that can provide the same type of features. Many consumers are now looking at the crossover segment," said Aiken.
Donlen Strategic Consulting Services, which tracks and monitors the wholesale market on a bimonthly basis, ranked the strength of the resale market by vehicle segment. "Over the previous quarter, the hardest-hit market segments have been near-luxury and luxury sedans, followed closely by light pickups and commercial vans, and these trends are expected to continue as the overall market softens," said Evan McKerns, strategic consulting leader at Donlen.
Used-Vehicle Market Forecast
Two unknowns cloud any forecast of resale market conditions. The first is whether the current economic slowdown will devolve into a recession. The second is how high fuel prices will spike this summer.
Last January, the Energy Information Administration (EIA) forecast that gasoline prices will average more than $3 per gallon for the 2008 calendar year. This will continue to place downward price pressure on larger, less fuel-efficient vehicles.
Although resale prices are predicted to remain soft during the course of the 2008 calendar year, prices will not become depressed.
"The projection for 2008 and beyond is that the market will be very troublesome, but I don’t see used-vehicle prices falling off a cliff," said Graham.
A possible bright spot in the used-vehicle resale market focuses on franchise dealers. "When franchise dealers are unable to sell new vehicles, they will need to focus on their used-vehicle department. This trend supports the increase in sales we have seen to franchise dealers recently," said Aiken.
One factor that may be beneficial to used-vehicle sales is President Bush’s economic stimulus program recently passed by the U.S. Congress. The tax rebates, targeted to lower-income individuals, will put cash-in-hand, sometime in May, of those who comprise the buying demographics for used fleet vehicles. When given a choice of making expensive repairs on an older vehicle, some may opt instead to use their rebate check as a strong down payment on a newer, higher-mileage, out-of-service fleet vehicle.
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