An analyst at JD Power has cautioned that the US auto industry needs to keep an eye on incentives that are now running close to record levels.
Speaking at NADA's annual convention in New Orleans, JD Power's vice president of vehicle analysis and analytics, Jonathan Banks, said: "Everyone needs to keep an eye on incentives."
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According to Banks, the supply of used vehicles, and increased new-vehicle incentives, contribute to depreciation, which is accelerating.
Supply
Led by a 33 percent increase in off-lease maturities, total used supply increased 13 percent in 2016, according to JD Power. Lease volume will continue to spearhead used supply growth moving forward, but at a reduced pace.
Banks said: "We're looking at a surge of about 3,000,000 vehicles coming off their leases this year. With so many vehicles available in the used market, prices take a hit."
The car share of used supply will be 49 percent in 2017, which is much higher than the 39 percent share of new sales, but supply growth is slowing. Pickups and utilities will continue to experience large increases in supply, according to JD Power.
Incentive Pricing
JD Power says the December 2016 incentive spend per unit was 7 percent above December 2008's all-time record. Incentives as a percentage of the manufacturer suggested retail price (MSRP) is also up substantially, but remains marginally below December 2008 levels. J.D. Power analysis forecasts incentives to rise further moving forward.
Depreciation
"In a nutshell, luxury car prices are taking a beating and losing a ton of value in their first three years of use," said Banks. According to his presentation, the year's estimated decline would leave wholesale used vehicle prices 9 percent below 2014's all-time high, and 8 percent above 2007's pre-recession level.
Banks also said that ongoing increases in used supply and new vehicle incentives will continue to take a toll on used vehicle prices. "Less favourable credit conditions will increasingly depress used prices as well — the credit impact will worsen as time passes (interest rate increases, reduced appetite to extend and/or take on credit)."
