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ldquoOEs know dealers need both used cars and new cars to attract customersrdquo NADArsquos Taylor says
<p> <strong>&ldquo;OEs know dealers need both used cars and new cars to attract customers,&rdquo; NADA&rsquo;s Taylor says.</strong></p>

Still Strength in New-, Used-Vehicle Pricing, NADA Says

Used-car price gains will peak in March-June. That, in turn, &ldquo;will fuel a good new-car environment,&rdquo; says analyst Jonathan Banks.

LAS VEGAS – Don’t look for the bubble to burst on used-vehicle prices, economists for the National Automobile Dealers Assn. say.

Better market fundamentals and still-short inventories mean both new and used-car prices will continue to rise in 2012, the analysts tell media at the 2012 NADA Conference and Exposition.

“I don’t understand why some people say that used-car prices have to collapse. They don’t,” NADA Chief Economist Paul Taylor says here. “This shortage of vehicles will be with us for awhile.”

There’s a symbiotic relationship between the two sectors, says Jonathan Banks, executive automotive analyst with the NADA Used Car Guide.

“We expect new-car prices to rise (this year) and raise the ceiling for used-cars as well,” he says.

At some point, second-hand-vehicle prices get so high it drives people into the new-vehicle market, Banks adds. “But we’re not at those levels.”

Sill, used-car prices are running about 12% above trend, and further increases are seen in the coming months. Banks says prices will rise about 0.1% in February, increase another 0.6% by midyear and jump 1.8% in December. Prices rose 3% last year.

“We think the used market will be very strong in the third and fourth quarters,” he says.

Using seasonal factors, used-vehicle price increases will peak at 5.0%-5.4% per month in the March-June period, NADA forecasts. That, in turn, “will fuel a good new-car environment,” Banks says.

Almost all vehicle segments will see price hikes, including intermediate compacts (2.7%), midsize cars (2.1%) and near-luxury models (3.0%), the dealer group says.

Midsize vans also will be in demand, with used prices expected to swell 3.6% this year.

“Minivans have been a resilient group,” Banks says. “Supply is going down quite a bit, so we expect some movement there.”

Fueling all this has been the tight supply of both new and used vehicles. New-model inventories were hampered last year by the Japan tsunami and Thailand floods that curbed production.

Retailers have had fewer used cars on lots as some buyers stayed away from the market, and the financing climate of 2009 that crimped leasing resulted in fewer nearly new cars and light trucks coming back to dealers.

Lease returns fell 17% last year, Banks says, and overall there were 6% fewer used vehicles funneled back dealers.

“Dealers were putting ‘checks’ in cars when customers brought them in for service to let them know how much their vehicle was worth (on a trade),” he says. “That’s how bad they needed vehicles.”

Lease returns will continue to be in short supply this year, down about 22%. But that shortage should peak by the third quarter, Banks says.

“Depreciation is at historic lows, so manufacturers can get aggressive with leasing (again),” he says, citing the recent trend to discounted 24-month offers that ultimately will help restock used-car lots.

“The OEs know dealers need both used cars and new cars to attract customers,” Taylor adds. “Certified used cars also are a way to attract new customers to a brand.”

Taylor is forecasting industry new-car sales at 13.945 million units this year, a number he acknowledges is on the high side.

“It’s at the top of the heap in estimates,” he says. “(But) one conclusion was that Europe would bail out its large economies, and I feel pretty good about that.”

Positive signs include an expected bottoming-out of housing prices in many U.S. markets, interest rates that are expected to remain low through 2013 and slowly escalating consumer confidence.

“The stronger the housing prices in a market, the stronger the light-vehicle registration gain,” Taylor says. “So we’re pleased to see real estate firming up.”

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