Will the volatile resale market remain strong?
July 14, 2022
The used vehicle market is moving away from pandemic-era volatility toward more normalized patterns of seasonality. The outlook for the second half of 2022 (and into 2023) is for prices to decline as higher interest rates and less government financial support should slow demand from the elevated levels of 2021.
How the pandemic shaped used-vehicle prices
The post-pandemic used vehicle market that arrived in late 2020 brought historic price volatility, which is now giving way to a more predictable resale market.
Fleet operations have been more challenging. The lure of a higher return at auction was muted by the difficulty of replacing the unit.
As a result, fleet leaders experienced:
Extended fleet lifecycles – higher odometer readings
Boosted maintenance costs; and
Impacted residual value recapture at auction
Initially, newer used vehicles in good condition with low mileage were in highest demand. However, since new-vehicle inventory has remained low, search parameters continue to expand. The impact on prices has been obvious – average overall auction prices in the U.S. are now about 30% higher than 2019. The trend in Canada is similar.
Persistently high used vehicle prices and excess demand have mostly been driven by original equipment manufacturer (OEM) production delays and the microchip shortage.
A return to seasonal selling patterns
A more predictable used vehicle market helps fleet leaders better plan vehicle replacement cycles.
Historically, remarketers could count on higher prices during the spring and summer months. The late fall and winter usually brought a lower return.
Used sales have begun tracking along the same seasonal (or annual depreciation) patterns that we experienced in 2019 and 2018, which were the last typical years for the used market.
Used vehicle prices have been riding a roller coasting since early 2020.
The pandemic shocked average values, which fell 13.4% to $12,477 in April 2020 from a month earlier. By August, values surged 36.3% ($17,015). Four months later, the average price had fallen 12.9%.
Price swings continued in 2021. By May, the average price was just under $20,000. Then in January the average price reached $22,116.
Digital sales continue to surge
The past two years have also seen an acceleration of digital sales that has kept prices strong by broadening demand. Auctions are relying more on online sales platforms that expand the buyer pool to a global audience.
One auction provider, KAR Auction Services, moved to 100% online in early 2021, three years ahead of schedule.
Element Fleet Management uses a multi-channel sales approach to vehicle remarketing that includes physical auction sales, digital sales, and virtual marketplaces so fleets can maximize their investment.
EV values at auction are still challenged
Compared to internal combustion engine (ICE) vehicles, electric vehicles (EVs) still represent a small portion (0.47%) of auction sales. However, since 2018, sales of used EVs have been steadily climbing.
EVs continue to depreciate faster than their ICE counterparts, according to 2022 sales data of 2019 models. For the three-year period, ICE compact cars depreciated 15.8%, while EVs in the category fell 33.1% in value. Also, the average odometer reading for the EVs was more than 50% lower.
Capitalizing on the changing used-vehicle market
Here are three ways to improve your remarketing results.
- Keep vehicles well maintained to recapture more residual value at auction
With lifecycles extended, preventive maintenance remains your best line of defense. It is crucial to perform regular vehicle inspections, tire rotations and other service needs.
- Stay committed to a regular vehicle replacement routine
Regularly replacing aging vehicles keeps a lid on higher-ticket maintenance items. Use expert guidance for your fleet model year planning.
- Partner with Element for remarketing
Element provides a multi-channel remarketing approach that leverages various channels to help clients recover the highest residual value for their fleet vehicles.
Are you ready to take action?
If you’d like to improve your resale planning and results, Element can help with strategic consulting and recommendations. Get in touch with us to learn more.
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