The Growing Opportunity in the Used Vehicle Market

2. Recent New Light-Vehicle Sales… • With 17.3 million new light-vehicles sold, 2018 is likely to be the last year of the run of 17 million+ sales, as both the National Automobile Dealers Association (NADA) and Edmunds forecasted 16.8 million and 16.9 million, respectively, for 2019. • The increasing cost of new light-vehicles are likely to force more Americans to consider a used vehicle. According to Kelley Blue Book data, the April 2019 industry average new-vehicle price was $36,843, a 2.0% increase from April 2018’s $36,111. • Interest rates on new light-vehicles are also driving the used car market, as 2018 new-vehicle interest rates increased 17%, compared to 9% for used vehicles. The average 2018 new-vehicle rate was 5.7%, compared to 6.27%, April 2019, and 6.1%, May 2019.

3. …Creates an Opportunity for the Used Vehicle Market • According to Edmunds’ Used Vehicle Outlook 2019 report, 40.23 million used vehicles were sold during 2018, a 2.6% increase from 2017, while new-vehicle sales increased just 0.6%. • Although Edmunds’ report projects total used-vehicle sales to exceed 40 million during 2019, Cox Automotive is forecasting approximately 39.5 million (as of January 2019). • The larger inventory of used trucks and SUVs may also attract more buyers to the used market, since these two categories have been the most popular with new-car buyers.

4. The Health of Used Vehicles Starts at the Wholesale Level • The wholesaling of used vehicles also impacts the retail used-vehicle market. A good place to start is the Mannheim Used Vehicle Value Index, which was 139.6 for May, a 4.0% increase from May 2018 and an 0.85% increase from April 2019. • Non-luxury used-vehicles in the wholesale market benefited from a significant increase in prices during spring 2019, however, their depreciation rate decreased 1.3% for May while depreciation for luxury used-vehicles was even less. • These wholesale trends had an effect on the retail used-vehicle market, as Mannheim estimated May’s used SAAR (seasonally adjusted, annual rate) was 39.2 million, compared to 39.7 million for May 2018 and 39.3 million for April 2019.

5. The Flood of Returning Leased Vehicles Continues • According to Edmunds, 4.3 million leased vehicles will be returned during 2019, increasing the used-vehicle inventory at new-vehicle and used-vehicle dealers, and many of them will be pickups, SUVs and crossovers. • This is one of the reasons the percent change in the SUV/CUV category in the table on page 2 of the Profiler increased much less than the overall industry. Consumers will find it much more expensive to lease a new SUV/CUV, which may cause them to decide to buy used. • Another factor is originating dealers or franchisees purchased a higher percentage of leased vehicles being returned during 2018, which reduces the number of used vehicles available for wholesale auctions, which could help to boost 2019 prices on used vehicles.

6. Most Used-Vehicle Buyers Are Younger, But from Most Income Ranges • According to The Media Audit’s 2019 aggregated consumer surveys of 66 markets representing more than 143 American adults, 9.5% of adults said they plan to buy a used car, truck, SUV or van, with an almost equal distribution of men and women. • Adults 25–34 and 35–44 were the two largest age groups, or 23.9% and 21.2%, respectively. Although 52.2% of adults planning to buy a used vehicle were Caucasian Americans, 18.9% were African Americans and 22.6% Latinx Americans. • Six of the nine income ranges in the surveys were in double-digits, with $35K–$50K, 16.9%, and $50K–$75K, 18.8%, the highest percentages, but $15K–$25K, 124, and $25K–$35K, 125, had the highest indices.

7. The Effect of Aging Vehicles and New Personal Transportation Options • According to the 2017 National Household Travel Survey (the latest data), the average age of vehicles in US households was 10.5 years, which increased to 11.7 years for 2018, and is expected to increase slightly to 11.8 years for 2019. • This would seem to benefit the used-vehicle market; however, the average age of vehicles in US households with lower incomes were higher: less than $25,000, 13.0 years, and $25,000–$49,999, 11.5 years, and they are less able to afford a purchase. • Although ride-hailing services (Uber and Lyft) still have not had much effect on new- and used-vehicle purchases, the percentage of adults who have used these services have more than doubled from 2015 to 2018, according to the Pew Research Center.

8. Advertising Strategies • Although CPO (Certified Pre-Owned) vehicles are a small percentage of the total market, independent dealers would be wise to promote any CPO vehicles in their inventories, as a good option for consumers unable to afford a new vehicle. • Another opportunity for new- and used-car dealers is the record number of leased vehicles being returned during 2019, which provide consumers with another alternative to the increasing prices and interest rates of new vehicles. • Pickups, SUVs and CUVs is another segment of used vehicles, especially lease returns, dealers should emphasize in their advertising. These are still very popular with consumers, but many can’t afford new models.

9. New Media Strategies • Excellent content for used-car dealers’ Websites and social media is a comparison of the cost of repairs for a 10-year-old vehicle compared to the cost of buying a newer used vehicle, emphasizing less repairs, better gas mileage and newer amenities. • Although the current interest rate for a used vehicle is more than new vehicles, new- and used dealers can use the two tables on page 1 of the Profiler as social media content, specifically comparing the same model of a new and used vehicle in a video presentation. • With younger adults the largest groups planning to buy a used vehicle, used-car dealers should incentivize one or more of these customers to serve as “microinfluencers” with short videos about their buying experience and the value of their vehicle as social media posts.