by Mary Wisniewski
When it comes to thinking about the future, to quote Charles Buxton: “In life, as in chess, forethought wins.”
And for the remarketing niche, guidebook executives are trying to help players “win” more business by offering the industry foresight into why and what wholesale value problems may arise in the next few years. Many of these guidebook analysts see some troublesome signs in the federal government’s push for more fuel-efficient vehicles.
Kelley Blue Book is “a little nervous about the government push for compact vehicles,” says Eric Ibara, director of residual value consulting. “If fuel prices remain stable for five years, at $90 a barrel, we think those segments will be competitive.”
Even as manufacturers got grief from the federal government for producing trucks and SUVs, these vehicles have been profitable for the carmakers and are expected to continue to perform well on the wholesale market. Guidebook execs also caution remarketers about fleet vehicle retention. Specifically, as fleet vehicles are held onto longer, their margins aren’t “great” when returning to auction, says Matt Traylen, a senior director at Automotive Lease Guide Inc.
Technology Boost
The variable in values — from the guidebooks’ standpoint — is vehicle technology. Specifically, the guidebooks are taking heed of the rise in vehicles with turbo-charged engines and crash-avoidance systems, because
vehicles tend to retain their value.
“Engines are the biggest technology push,” Traylen says. “It’s a big part of the hit lines.”
Diesel vehicles, for one, keep their value, but lack a stellar reputation amongconsumers. KBB ’s Ibara believes marketing gave birth to the misconception, as Americans still recall the “smelly” diesel of some 30 years ago. Just as technology matters to car values, so too is the new approach OEMs are taking to determining their vehicle outputs. The guidebooks note that OEMs are now producing vehicles based on detailed assessments of demand. This strategy is crucial because seasonal factors and incentives can dramatically change the market, causing dealers to carry the wrong amounts of inventory.
“The industry fluctuates from things like ‘Cash for Clunkers,’” Ibara says. “The key is to have fortitude to cut back on production when demand slips down.” Guidebooks are producing their valuation forecasts faster, and that should improve the accuracy of wholesale value predictions overall. Indeed, ALG beganto update its residual values monthly from bimonthly last October because of the ongoing volatility of the used-car market, and the NADA Used Car Guide will offer subscribers weekly auction values online in early 2010. ALG and NADA follow in the footsteps of Black Book, which has published dailysince mid-2008, and KBB , which migrated last year to weekly online valuation.
LESSONS LEARNED
In predicting the future, guidebook executives have also been surprised about some of the previously predicted events that have had minimal effect on values, like manufacturers’ discontinued brands and the bankruptcies of General Motors Corp. and Chrysler LLC.
Black Book, for one, forecasted that killed-off models would harm brands. “It hasn’t been negative at all,” says Ricky Beggs, Black Book’s vice president and managing editor. He credits this to the survival of similar models, coupled with expired cars continuing in the service and warranty network. The OEM bankruptcies also did little damage to wholesale values. Indeed, consumers harbored few concerns about service issues on vehicles made by the bankrupt OEMs, Ibara says. In fact, the bankruptcies led to additional dealership traffic, as car owners sought out the bankrupt carmakers in search of better deals on new cars. The brevity of the bankruptcies also helped. “We made a mistake,” Traylen says. “Chrysler and GMAC did a good job of getting cars off the books.”
