Used Vehicle Inventories Expected to Plunge in Q-4

The failure of Lehman Brothers financial services firm in September 2008 sent shockwaves through the global economy and led to the worst recession since the 1930s. Sales and leases of new vehicles plummeted as consumers tightened their purse strings. Now that the 3-year leases on those vehicles are ending, analysts are predicting a severe shortage of late-model used cars and trucks.

NADA Guide analyst Jonathan Banks says it’s a trend that isn’t likely to change in the near future and warns that returns of leased vehicles will be especially low beginning in the fourth quarter of this year.

For example, in 2008, 146,000 leased BMWs were returned to dealerships. This year, only 90,000 will be returned.

The shortage of used vehicles is expected to push prices to within a few thousand dollars of the price of many new cars in some cases. As a result, more consumers are expected to purchase their leased vehicles instead of turning them in for new replacement models, which will only exacerbate the problem.

As the U.S. economy struggles to rebound, many dealers depend on used vehicle sales to make up for the sluggish new car market. With prices of used vehicles increasing, they may now have to rethink that strategy.

One such dealer, Dorian Boyland, said he has been forced to buy used vehicles at auctions in order to supplement his inventory of certified trade-ins and lease returns.

According to BMW Group Financial Services vice president of sales and marketing Shaun Bugbee, having an ample supply of late-model vehicles is an essential component of any dealer’s leasing strategy. Bugbee said, “It’s extremely important that our dealers have a good supply of used vehicles.”

Many dealers are now selling older vehicles with high mileage that would once have been sold at wholesale.

According to the NADA Guide, used vehicle inventories will decrease by five percent this year. Inventories are also expected to fall another four percent in 2012.

Consulting firm ALG, which specializes in automotive residual values, expects the trend to continue into 2013. They predict that used vehicle inventories won’t return to pre-recession levels until 2017 at the earliest. The company’s director of residual value solutions Eric Lyman said he expects to see used vehicle values peak in January of 2012.

Toyota Financial Services’ national risk manager Greg Russell concurs. He said, “It may be a decade until we return to the supply of used vehicles we once had.”

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