A surge in cars and SUVs coming out of leases have analysts predicting pressure on prices of both used and new models, curbing investor enthusiasm over sales records projected for this year.
Increased availability of 2- and 3-year-old models with modern safety and technological features should pull used-car prices down from record highs and provide more competition for new vehicles. More than 3 million autos will reach the end of their leases this year, a 35% jump from last year, according to the NADA Used Car Guide, which uses data from J.D. Power’s Power Information Network. It’s the most off-lease vehicles since 2003, according to Manheim Consulting.
To prepare for the increase, many brands and dealers are ramping up their certified pre-owned vehicle programs, which allow them to attach an extended warranty and other perks to late-model used vehicles and sell them at a premium. Those sales jumped to a record 2.55 million in 2015, said Tom Webb, Manheim’s chief economist, who added that they’ll “certainly” hit another record in 2016.
That influx of used vehicles won’t be enough to threaten the auto industry’s recent strength, buoyed in 2015 by low gasoline prices, available credit, rising discounts and a strengthening job market. Analysts said all that will help boost new car and light truck sales in the U.S. to 17.8 million units in 2016, topping the record set last year, according to a survey by Bloomberg.
“As that used-car price softens and falls, it will increase the number of folks who would switch over to a used vehicle instead of a new car,” said Joe Derkos, a senior director at J.D. Power. “We’ll see a slow, steady adjustment back away from these historical highs, but by no means will it jeopardize the strength and longevity of the industry.”