J.D. Power's David Paris Analyzes Impact of Strengthening Used Vehicle Price Index on U.S. Automotive Dealerships
"Penske, Group 1 and Sonic have indicated in their second quarter reports that they have driven up used vehicle sales by double digits -- between 10 and 17 percent. All of these groups credit their used vehicle operations for contributing to higher overall profits for the quarter. In many cases bigger investment in used-vehicle operations is helping to balance-out smaller new-vehicle market margins."
-- David Paris, J.D. Power
By: J.D. Power
"Our most recent Used Vehicle Price Index report shows that used vehicle prices have been steadily strengthening since the middle part of 2017 and have remained strong deep into the summer selling season in 2018. In August our index reached 122 -- which is about 2.3 points above July's level. It represents the third consecutive month of growth, and could potentially cause the index to reach its highest point since late 2015," says Paris.
The J.D. Power Valuation Services Used Vehicle Price Index is a measure of the movement in used vehicle prices of models that are up to 8 years in age. The indices are created at a market level -- as well as at the individual segment level -- to capture and track how prices of used vehicles move over time.
"The underlying information comes from a proprietary database containing approximately 90 percent of all dealer-only auction sales that have occurred in the United States since 1992," explains Paris.
He adds that used vehicle prices have been elevated for most mainstream segments.
"This means that, ultimately, dealers are paying more for vehicles at auction. At the same time, this means that, while consumers are paying more on the front end, they are benefiting from higher trade-in values on many models."
Implications of Strengthening J.D. Power Used Vehicle Price Index
Persistently strong used car prices are already having an impact on how dealerships are running their business.
"With elevated prices for used vehicles -- along with increasing interest rates -- dealers are paying more in floor-plan expenses and need to be more aware of potential increases in carrying costs associated with their used vehicle inventory. As a result, we are seeing major players take immediate action to respond to this trend. Used vehicle operations can no longer simply be treated as a part-time endeavor for dealers," says Paris.
This is especially true since consumers today are very well educated about used vehicle dynamics and have access to a wealth of knowledge at their fingertips, thanks to new and increasingly popular online and mobile resources to support the buying process (see article on new jdpower.com website).
"The used-car buying experience is now extremely transparent and, also, extremely competitive. Dealers and other industry stakeholders need to keep on top of the pricing trends," notes Paris.
Some of the larger franchise dealer groups, for instance, have announced they are placing a much larger emphasis on used vehicle operations than before.
"Penske, Group 1 and Sonic have indicated in their second quarter reports that they have driven up used vehicle sales by double digits -- between 10 and 17 percent. All of these groups credit their used vehicle operations for contributing to higher overall profits for the quarter," he says, adding that in many cases bigger investment in used-vehicle operations is helping to balance-out smaller new-vehicle market margins.
To listen to the entire podcast interview with J.D. Power's David Paris, visit:
To learn more about J.D. Power's Used Vehicle Price Index, other Valuation Services, visit: