Strong year-end close for used car market

US wholesale used vehicle values increased in Q4 2014 by nearly 2% to finish the year slightly higher than 12 months previously as consumer demand for used car and trucks remained strong, according to analysis from vehicle remarketing services specialist Manheim.

The Manheim Used Vehicle Value Index, a measure of wholesale prices adjusted for mix, mileage and season, ended the year at 123.9, a 1.8% increase from 2013 and 2.1% higher than Q3 2014.

The company says an improving job market and attractive financing helped boost the retail market for new and used vehicles. The strongest demand for used vehicles in Q4 was in the $13,000-$15,000 range, a higher sweet spot than a year ago. Sales of certified pre-owned vehicles, that is: late-model vehicles still backed by a warranty, also hit record numbers in 2014.

“The used vehicle market finished another solid year,” said Manheim chief economist Tom Webb. “Consumers continue to see great value in purchasing used vehicles, even at higher price points. Dealers continue to see used vehicles as an important and profitable part of their business.”

Manheim’s analysis shows pick-ups (up by 6.1% on a year-over-year basis) and vans (up 3.1%) remained the strongest segment. SUV and crossover utility vehicles (CUV) also continued to be a popular segment, up 2.8% in December compared to the same period the previous year.

Compact car prices dropped 1.1% in the final month, compared to the same period in 2013, as consumers moved to CUVs and mid-sized cars. While midsize cars had been one of the weaker segments during the year, by the end values in December were 2.2% higher than the same period a year previously. Luxury car values fell 0.4% on a year-over-year basis, holding their prices despite an increase in supply from off-lease vehicles.

Manheim predicts that with new car sales volumes expected to plateau, the upcoming year will be critical for the auto industry. The company says that as long as automakers keep incentives low for new car sales, used vehicle values should remain stable. An incentive war, however, would lower new car prices and also put pressure on dealers to lower used car prices.

“The growth rate in the US auto market is expected to slow down and level off in 2015,” Webb said. “The big question is whether automakers will be satisfied with their respective slice of the pie. If they aren’t satisfied and resort to heavy incentives, prices and profits will fall.”