The Spring Market: a Perfect Storm?

We are currently experiencing what, for me, is an unprecedented market for this time of year. While I was not expecting as long and strong a spring market as last year’s, neither was I expecting the weakness that we are currently experiencing in what have been some of our most active market segments for the past several years, namely pick-ups, full size SUVs, and luxury cars.  

Like the formation of “the perfect storm”, a variety of factors have conspired to create this unusually difficult market, any one of which by itself would not have affected the market significantly but together have had a huge impact. Gasoline prices, the housing slump and mortgage crisis, a weak stock market, a shrinking job market, strong rebates and incentives in the face of slow new vehicle sales, global warming and the “greening” of vehicles, increasing rate of inflation, an impending presidential election: any one or two of these might have caused a ripple in the spring market, together they have caused a rising wave. 

A brief overview of the areas of strengths and weaknesses in the current market serves as a reminder of just how much the used vehicle market is a function of supply & demand. Find the segments with the greatest supply and least demand and you will pinpoint the weakest markets. Full size SUVs and pick-ups have dominated new vehicle sales for the past several years. Now, they are returning to the market in large numbers as their owners move on to something else. Gas prices and ecological considerations - to say nothing of the fickle need of us humans for something “different” - have pushed them largely out of favor as of late and demand for them has plummeted.The only thing that will promote the sale of all but the most unusual of trucks is a price that makes them irresistible. When you can buy that ’04 Chevy Tahoe for $2000 LESS than an ’04 Toyota Rav 4, who cares about the price of gas and what the neighbors think. The same can be said for the luxury market, especially the European segment. They sold/leased a ton of them in the past several years as we experienced a strong economy and were largely insulated from the spectre of global warming. A year ago a 2 year old (a 2004 model) Mercedes E320 sedan was worth around $26,000. Today the same 2 year old vehicle (a 2005 model) is worth around $22,000, or $4,000 less. That savings will buy a lot of gas and ease a person’s ecological conscience as well.  There are bargains out there and they are largely a function of supply overwhelming demand in certain market segments.   

The same law of supply and demand dictates what is doing well in the market. American cars, for example, are both relatively scarce and cheap compared to their imported counterparts. This means they are in some demand due both to their scarcity (especially in the northeast) and fit into that under $12,000 retail market that is also in demand. So the same 2 year old (2004 model) Buick LeSabre Custom that was worth $8200 a year ago is worth $9000 today (2005 model).  

The point is that this is a very unusual and difficult market for all but the most desirable vehicles. It is a time when a guidebook must function at its highest level in order to stay abreast of the marketplace and provide their clients with information that will enable them to function optimally in spite of the unusual circumstances. In the course of my responsibilities as editor I have become very familiar with the other appraisal tools available to the industry and I can say with confidence that no other used vehicle appraisal tool is as current or accurate, and therefore “useable”, as Galves. In my opinion that includes actual auction results which, though clearly useful and relevant, have to be interpreted with an understanding of condition variation, color preferences, equipment penetrations and values, export markets, special marketing incentives, elite sellers, and, probably most important, a real sense of the preponderance of “no sales” for certain vehicles. The reality is that most ordinary consignment dealers are lucky to sell one out of every three vehicles run. We take into account all those variables when we consider auction results and use them as part of our valuation resources. If you don’t, you can be seriously misled by auction information.  

We recognize that our traditional trade-in perspective is representative of the lower end of the wholesale used vehicle spectrum and can be conceived of as being “low”. We added the “Galves Market Ready” value as an effort to represent a higher level of the wholesale spectrum and give dealers a useful tool when dealing in those higher levels. If used and understood properly, we are confident that no valuation tool is as accurate and current and useful as Galves. Given the current difficult market conditions we are particularly committed to staying on top of the market and continuing to protect our subscribers’ downside while still reporting a level of pricing that makes it possible to buy, trade & sell effectively.

Dan Galves