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Used Car Market Conditions - April 2009

April 2, 2009

Current Used Car Market Conditions

Dealers Competing for Used Vehicles
The wholesale used vehicle market continues to be supported by a short supply of vehicles. With rare exceptions, most vehicle segments are either holding steady or appreciating as dealers compete for a limited number of vehicles. This is a direct result of stagnant new vehicle sales and fewer trade-ins, as well as fewer program vehicles and lease terminations as manufacturers have retreated from those business strategies. Particularly scarce, and therefore particularly strong, are subcompacts and domestic cars in lower price ranges. Clean, low mileage vehicles of any sort are scarce as well and command unusually strong prices.

A More Stable Market Returns
Of course, this is all relative. It seems we are all experiencing a bit of euphoria (and don’t we deserve it!) after suffering through the most difficult year used vehicle buyers/sellers/traders are likely to see for (hopefully) quite some time. We finally have what looks to be a stable market, and after the year we have been through it feels pretty reassuring. We expect the stability to continue for the most part as supply remains low. We do question the level of retail demand as consumers act cautiously in response to the current economic uncertainty we are attempting to deal with. The fact is that although we are feeling pretty positive about the stability of the market after a topsy-turvy 2008, comparable vehicles are, with rare exceptions, worth less than they were a year ago. That is especially true of the European luxury segment where relative bargains still abound even after some rallying, but is true for most other segments as well. Trucks and SUVs have rallied significantly as well, but that is after experiencing something of a freefall for much of 2008.

But stability is a good thing. For much of 2008 vehicles were available but were extremely difficult to sell or appraise. Today’s situation, where vehicles are scarce and difficult to find but at least saleable, is clearly preferable. As we said, we do expect the market to remain pretty much the same for the near future.

Segment by Segment

European Luxury Vehicles: This is one segment that looks as if it may continue to erode some. There is still too much supply for the level of demand and that will probably continue to be the case for a while.

Convertibles: Many have rallied strongly (BMW Z4s and Mercedes CLKs prime examples). We expect they will remain strong for the next month.

Full size pick-ups & SUVs: Have regained much of their lost value. We suspect they may begin to act normally (that is, erode at a moderate pace) as those consumers who recognized their relative value have largely made their purchases.

Very late-model vehicles: These continue to be problematic in the face of the very strong rebates and incentives that manufacturers are placing on new inventory.

“Price range” vehicles: Continue to be scarce and in demand and should remain strong for quite some time. Domestic cars - almost “price range” vehicles by definition - are particularly scarce and should continue to show strength as well.

Dan Galves