CNW: Days’ Supply of Used Models Softening Even Further

CNW Research’s latest used-vehicle supply findings concur with several other assertions from wholesale analysts — it’s not going to be easy for managers to keep their used inventories stocked.

Even with trade-ins climbing because of greater new-vehicle sales, CNW revealed on Tuesday that the industry remains at a 45-days’ supply of used vehicles.

Highlighting just how significant the supply dearth is, president Art Spinella noted that January is running at a 44.3 days’ supply, lower than any month of 2011. For comparison, the level stood at 50.7 days in January of last year.

CNW recollected that having a 70 to 80 days’ supply in the early 2000s was not uncommon. In fact, used supply hit 86 days’ in November of ’08.

“Dealers continue to struggle finding the right vehicles for their inventory,” Spinella acknowledged.

“It was once thought that having a 45 days’ supply was ‘ideal,’ but that figure is now considered far too low for most dealerships. The likely ideal level is in the low 50 days,” he explained.

CNW determined that small-car supply — just like on the new-vehicle side — continued to shrink as a share of total sales while full-size pickup inventories rose to its highest level of the year in December.

“Estimated sales for January shows small cars again declining to about 16 percent of sales while pickups should take more than 13 percent,” Spinella projected.

Early January Sales Trends

Looking at how used sales are shaping so far this month, CNW indicated that private-party sales continue to increase as a share of total sales, running more than 26 percent ahead of January of last year.

Spinella pointed out that franchised dealer used sales are up about 4 percent in the opening half of the month while independent dealers saw a near 3-percent decline.

As demand increases, CNW said dealers are beginning to see prices firming.

“For example, franchised dealers' average used-car asking price in January is about $11,516, and they are getting more than 94 percent of that asking price for vehicles bringing average transaction price to $10,855, up 2.9 percent versus year ago,” Spinella highlighted.

“It also is a gain of nearly 3 percent versus December 2011,” he added.

“If the rest of this month reflects historic first-half of January trends, the industry will sell in the 2.17 million unit neighborhood this month, or 8.2 percent ahead of last year’s 2.01 million,” Spinella went on to estimate.

In terms of age, CNW noted the hot products are still the one- to six-year-old rides, but the supply is tight.

Older models — more than 10 years old — are lagging somewhat based on CNW’s monthly segment tracking surveys.

“There is a return of younger consumers to the used-car market which should perk up the over-10 year old sales numbers in the coming months,” Spinella surmised.

“Pickups are gaining in market share while small cars are diminishing,” he continued. “This could change if gasoline prices rise dramatically, but for many of the 20-somethings, a move to anything newer than what they currently drive will improve fuel economy and offset all but massive fuel price increases.

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ALG: No Change in Used-Vehicle Supply Outlook

When revealing its first Industry Report for the year, ALG did not make any significant adjustments to the current used-vehicle supply outlook.

Analysts acknowledged the last major adjustment was made for their July/August 2011 edition.

Looking ahead to when they next roll out a report for the March/April edition, ALG analysts projected to see a positive seasonal pattern.

“Expected declines (depreciation and seasonal pattern) will be within 0.5 points to 1 point on average due to a positive seasonal pattern than what was seen in the January/February edition with varying degrees for particular segments due to differing depreciation rates,” ALG explained.

“Based on the latest economic data, including housing and labor market figures, as well as overall economic growth rates, ALG may make further adjustments in the March/April edition to reflect the current and anticipated economic situation,” analysts emphasized.

ALG contends the general consensus on the outlook of the economy still remains a view of slow growth even with the improvement in labor markets.

“There are still many potential problem areas that need to be worked out including the European debt issues and slow growth in housing prices, among other things,” ALG acknowledged.

“ALG is paying close attention to these metrics, which affect the wealth of consumers, thereby having an impact on current and future big ticket item purchases such as automobiles,” the firm pointed out.

More Economic Commentary

ALG delved deeper into U.S. economic data, beginning with a mention that GDP grew at a 2-percent seasonally adjusted annual rate in the second estimate for the third quarter.

Relative to the 0.4-percent and 1.3-percent growth rates for the two prior quarters, analysts declared this third-quarter number is a welcomed improvement and has dampened thoughts of another U.S. recession.

ALG highlighted consumer confidence also saw a huge bump in November, going from its lowest level in more than two years (40.9 in October) to 56 in November.

“Though this is still far lower than what was seen prior to the recession, and not even close to the post-recession peak, the increase is a good sign as the economy moves further into its recovery,” analysts explained.

“There are clearly still many issues that need to be dealt with, including the prospect of a European recession, which some say has already begun, and the difficulties with the U.S. deficit,” they continued. “However, at present, the recent numbers have at least given some cause for optimism.”

Next, ALG turned its focus on fuel markets, noting there was little change made to the gas price outlook for its January/February edition relative to the November/December 2011 edition.

Analysts indicated oil prices for the last three months through October have been hovering near $86 per barrel while gas prices sat at $3.45 per gallon in October. This is down significantly from the $3.91 that was observed earlier in the year.

“Recent months have seen fairly stable oil and gas prices, though they often fluctuate a great deal from one period to another,” ALG stated.

“With this in mind, ALG expects that gas prices will average about $3.90 per gallon in the 36-month term, and continue to show steady growth in the foreseeable future,” the firm added.

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