If consumers are in the market to buy a new car in 2012, they may want to think about trading in their current vehicle, as auto analysts anticipate dealers will spend top dollar for them.
Consumers can expect higher-than-average trade-in values this year, said Jonathan Banks, executive auto analyst with the National Auto Dealer Association Used Car Guide*.
January trade-in values up 8 percent
"The average trade-in value of a 3-year-old used car is 8 percent higher in January 2012 compared to last January," said Banks. "We expect this trend of higher trade-in values to continue throughout the year."
While there are a variety of factors for why used vehicles are retaining their value, Banks noted two specific aspects. Chief among them is a shortage in used vehicle supply. Banks indicates the dealers' supply of used cars is expected to diminish by as much as 7 percent this year when compared with 2011. In addition, the off-lease supply of used vehicles is anticipated to plummet by 22 percent, down from 17 percent last year.
"The depreciation rate of used vehicles this year will be slower than it has been at any other time in recent history because of reduced inventory, which will keep prices on used models in demand at a premium," said Banks.
Heavy demand for used vehicles
The other factor is used vehicle demand, which he believes will rise in 2012, primarily due to the increase of the average age of vehicles to nearly 11 years. Buying activity is expected to grow both for new and used models, Banks noted. This may come at a cost to car buyers hoping to buy at a discount, as Banks stated that the increased demand will likely lead to an uptick in prices.
KBB forecasts 10 percent increase in January auto sales
Despite the rise in sticker prices, vehicle valuation firm Kelley Blue Book** projects there was a surge in car buying activity in January. KBB forecasts that new-vehicle sales rose 10 percent in January when contrasted with the same period in 2011. Ford is expected to have a dramatic upswing in sales, rising 14 percent to 144,900 units moved compared to January 2011's 126,981.
Meanwhile, fellow American automaker Chrysler is projected to see sales volume rise nearly 32 percent over last January to 93,600 models sold. Foreign brands Hyundai-Kia and Nissan are expected to post double-digit sales growth as well.
Alec Guttierrez, senior market analyst of automotive insights for KBB, suggested higher auto sales will be an ongoing theme throughout the balance of the year, based upon KBB's analysis of projected economic conditions involving the nation's rate of unemployment, the health of the housing sector and consumer confidence levels.
"Given current market conditions and our expectations for 2012, we believe sales will continue to improve at a conservative pace in 2012," said Guttierrez.
That's not to say KBB doesn't have concerns. Gutierrez noted that the company is particularly worried about the ongoing European sovereign debt crisis and political instability in the Middle East. Should these issues not subside, it could stymie the U.S. economy and adversely impact the automotive industry specifically.
*according to NADA Used Car Guide on Jan 8, 2012
**according to Kelly Blue Book on Jan. 23, 2012
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