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NADA UCG: Demand for Used Still Solid

Modestly softer demand in recent months is not an indication that consumers are no longer hungry for used vehicles, according to NADA Used Car Guide. It's quite the contrary.

In the latest Guidelines report, senior analyst Jonathan Banks says "numerous indicators suggest that consumer demand for used vehicles continues to grow, albeit at pace slower than what has been observed over the past few years."

For instance, citing CNW Research, the report notes year-to-date used-vehicle sales through August were up 3 percent; not too far off the 4-percent gain in the same period of 2011.

"That being said, CNW did report that used sales dropped by nearly 16 percent from July to August, but while high, this result is similar to the 15.2-percent loss recorded over the same two month period last year," Banks explained. "In addition, the July-to-August slide is typical for the time of year, and if activity holds true to seasonal form, we should see used sales continue to erode sequentially through the remainder of year."

Another sign of strength in used demand is continually strong used prices, Banks added. In fact, NADA's used price index showed a 7.3-percent uptick last year, Banks said, "and they've grown by an additional 1.2 percent so far year-to-date." (The index is mileage- , mix- and seasonally adjusted and examines late-model units).

He stressed that while this uptick "isn't as remarkable" as recent years, the trend in prices continues to move upward.

"Of course, the well documented contraction in late model used supply has played a significant role in pushing up used prices over the last few years, but the fact that sales have also improved means that rising demand has also been a factor," Banks continued.

"If we strictly go by sales and price trends to judge the current state of used-vehicle demand and to assess its near-term outlook, it appears that there is still some time to go before used-vehicle demand will be satisfied," he added. "However, when combined with other indicators the degree of confidence supporting this assumption increases."

Banks pointed to used-vehicle floor traffic trends spotted by CNW. This metric remains on the upswing and still hasn't gotten back to pre-recession levels, he explained.

"Similarly, the Conference Board's Plans to Buy survey places the percentage of respondents planning to purchase a used vehicle within the next six months back to year-ago levels after having dipped moderately through last winter," Banks added, also pointing out that NADAGuides.com has seen used searches jump 15 percent so far this year.

"On the lending front, banks are not only loosening standards for auto loans, but they also continue to report stronger demand for auto loans in general," he continued. "In fact, the net percentage of bank respondents reporting stronger demand for auto loans (both new and used) in the latest Federal Reserve Senior Loan Officer Survey was nearly 20 points higher than it was in the second quarter last year.

"When taken as a collective, it's clear that consumer demand for used vehicles remains sound," Banks added

Modestly softer demand in recent months is not an indication that consumers are no longer hungry for used vehicles, according to NADA Used Car Guide. It's quite the contrary.

In the latest Guidelines report, senior analyst Jonathan Banks says "numerous indicators suggest that consumer demand for used vehicles continues to grow, albeit at pace slower than what has been observed over the past few years."

For instance, citing CNW Research, the report notes year-to-date used-vehicle sales through August were up 3 percent; not too far off the 4-percent gain in the same period of 2011.

"That being said, CNW did report that used sales dropped by nearly 16 percent from July to August, but while high, this result is similar to the 15.2-percent loss recorded over the same two month period last year," Banks explained. "In addition, the July-to-August slide is typical for the time of year, and if activity holds true to seasonal form, we should see used sales continue to erode sequentially through the remainder of year."

Another sign of strength in used demand is continually strong used prices, Banks added. In fact, NADA's used price index showed a 7.3-percent uptick last year, Banks said, "and they've grown by an additional 1.2 percent so far year-to-date." (The index is mileage- , mix- and seasonally adjusted and examines late-model units).

He stressed that while this uptick "isn't as remarkable" as recent years, the trend in prices continues to move upward.

"Of course, the well documented contraction in late model used supply has played a significant role in pushing up used prices over the last few years, but the fact that sales have also improved means that rising demand has also been a factor," Banks continued.

"If we strictly go by sales and price trends to judge the current state of used-vehicle demand and to assess its near-term outlook, it appears that there is still some time to go before used-vehicle demand will be satisfied," he added. "However, when combined with other indicators the degree of confidence supporting this assumption increases."

Banks pointed to used-vehicle floor traffic trends spotted by CNW. This metric remains on the upswing and still hasn't gotten back to pre-recession levels, he explained.

"Similarly, the Conference Board's Plans to Buy survey places the percentage of respondents planning to purchase a used vehicle within the next six months back to year-ago levels after having dipped moderately through last winter," Banks added, also pointing out that NADAGuides.com has seen used searches jump 15 percent so far this year.

"On the lending front, banks are not only loosening standards for auto loans, but they also continue to report stronger demand for auto loans in general," he continued. "In fact, the net percentage of bank respondents reporting stronger demand for auto loans (both new and used) in the latest Federal Reserve Senior Loan Officer Survey was nearly 20 points higher than it was in the second quarter last year.

"When taken as a collective, it's clear that consumer demand for used vehicles remains sound," Banks added