THE SWINGING PENDULUM OF USED VEHICLE PRICING

The Automobile Red Book has been a trusted source for used vehicle pricing for 100 years.  In that time, we have closely followed and analyzed the market, and continue to use our experience to be a valuation leader today.

Determining used values is not as straightforward as it may first appear.  Many people assume that as time goes on, every vehicle simply depreciates a certain percentage from one day to the next.  That is rarely the case.  While it is true that many vehicles do see a steady decline in value throughout their life cycles, market factors can cause unexpected pricing changes.  Sometimes, those factors can even be reflected as an increase from year to year.

Take the time period between October 2009 to October 2010.  While most vehicles did show a decrease in value during this time, some actually showed an increase.  How can this be?  Well, if we are just looking at this one date, we are not getting the whole picture.

In late 2008/early 2009, vehicle prices took a nosedive like no time in history.  There were many factors that played into this.  Fuel prices skyrocketed, severely depressing truck and SUV prices.  A recessed economy made it difficult for many people to get loans, particularly on older vehicles, which also lowered prices.  The much-discussed Cash for Clunkers program made many older vehicles virtually worthless as cash assets, instead finding greater value as a trade-in on a new car.

To put it mildly, used vehicle prices had tanked.  Most were so low, the idea of a nice, uniform depreciation was impossible.  It was an historic time for used vehicle prices.  So when the economy began to rebound, car and truck prices began their ascent from the basement.

In late 2009, prices began to rebound.  It was gradual at first, but then values started to regain some serious momentum.  By the end of the year, many vehicles increased in value thousands of dollars.  But even at this accelerated rate of increase, many vehicles were still lower than “normal”.

During this time, the pendulum of pricing was on a wide arc.  Many factors helped it swing back up.  With the end of Cash for Clunkers, older used vehicles suddenly became scarce, and prices climbed. Fuel prices began to stabilize, so truck and SUV prices began to increase.  Rental companies were keeping their fleets longer because when things were bad, they had to cut costs.  Less fleet cars at auction meant, you guessed it, higher used car prices.  And banks were starting to let loose of the purse strings a little bit, so people were able to purchase more vehicles, meaning higher values all around.

It was a dramatic turnaround, made even more dramatic because of the extreme conditions that led up to it.  The result is that thousands of vehicles were posted with a year-over-year increase; some by hundreds or thousands of dollars.

Things did begin to stabilize to some extent during 2010, and once prices got closer to what we would normally expect, a nice month-to-month decrease was seen on most vehicles.  But even as prices decreased during this time, it still might not be obvious if you compare year-to-year, as in our October 2009 vs. October 2010 example above.

The Automobile Red Book approaches pricing like it always has: it monitors the market, and makes pricing adjustments up or down accordingly.  There is no agenda to this strategy.  There is no secret formula.  All we have is the market and our knowledge of the automobile industry, history, and economic factors to guide us.  So if you see a value that is higher or lower than you expect, there may be more to it than meets the eye.  But you can be sure that we are keeping on top of the situation day-today, month-to-month, and year-to-year—just like we have for the past century.