Affordable Used Vehicles Becoming Scarce

CR averages the overall reliability scores (used car verdicts) for the most recent three model years, provided that the model remained unchanged.

For consumers considering trading in older used vehicles, 2017 could be the time. The latest study predicts a record number of off-lease vehicles will fill dealer lots and that a declining number of older trade-ins will put significant upward pressure on the late model used market this year. The average used vehicle trade-in is six-years-old, with Edmunds, source of the data, opining the number of trade-ins will be below six million this year for the first time since 2012.

“While low interest rates and consistent values are making it possible for the market to absorb these newer, more expensive off-lease vehicles, demand for older, less expensive used vehicles hasn’t waned,” Edmunds Senior Analyst Ivan Drury said. “Fewer older vehicles available puts sellers at an advantage, particularly those looking to sell vehicles that are in high demand like trucks and SUVs.”

In 2016, 38.5 million vehicles were sold in the used market, an increase of 0.6% from 2015. With increased leasing, an ongoing trend, the average used vehicle sold by a franchise dealer in 2016 was 4.1 years old, a record low, pushing the average used vehicle transaction price up to a record $19,189.  Sales of certified pre-owned (CPO) vehicles set a record as well in 2016 – at 2.6 million units for 22.8% of all used vehicles sold by franchise dealers. However, the year-over-year growth in CPO sales was only 3.5%.

“CPO sales actually didn’t grow as much as would have been expected, given the number of vehicles coming off lease,” Drury said. “This indicates dealers put more off-lease vehicles directly onto lots instead of going through the certification process, which could be one factor keeping pricing in check and allowing the market to absorb so many newer vehicles entering the market at once.”

Because lease terms on average are around 36 months, Edmunds analysts looked at lease rates from 2014 to get a rough estimate of how many vehicles are anticipated to come off lease in 2017. Lease volume rose 10.6% in 2014 compared to 2015, so the number of vehicles coming off lease in 2017 is likely to set another record. Lease volume also continued to set year-over-year records in 2015 and 2016, which means off-lease volume is expected to grow rapidly in the years ahead.

“The used market as a whole is definitely amid a significant transition that’s only just starting to accelerate,” Drury said.