FLEET SELL OFF IS EXPECTED TO TEMPER USED CAR PRICES

Some of the decline in used-vehicle prices from highs in April and May has been due to seasonal factors, but an increase in supply this fall will edge prices lower, said Tom Kontos, executive vice president of customer strategies and analytics at ADESA Analytical Services.
Kontos made the prediction last week during a series of presentations by economists at the National Auto Auction Association convention here.

Last year, new-vehicle sales to rental fleets jumped 25 percent to 1.4 million units, Kontos said. Now, as rental companies begin to turn over their fleets, "defleeting will put downward pressure on prices," he said. Prices should ease for cars, particularly intermediate and compact cars, minivans and some crossovers. Prices of large SUVs and pickups won't be affected as much because rental fleets carry fewer of those vehicles.

"I believe we're past the overall peak" in used-vehicle prices, Kontos said.

Kontos and two other economists agreed that the U.S. economy needs to see a rebound in the housing market before new-car sales will rebound strongly.

"The No. 1 problem is housing," said Ira Silver, the auction association's chief economist. "I don't see a really strong rebound and expansion until housing turns around."
Housing starts, he added, probably will rebound a bit by the second half of next year.

Paul Taylor, chief economist for the National Automobile Dealers Association, along with Kontos and Silver, predicted new-vehicle sales will strengthen in the last four months of this year.

Taylor cited increased availability of vehicles as Japanese automakers recover from shortages induced by the March 11 earthquake, as well as easier financing.

"We're seeing interest rates we haven't seen since Truman was president," Taylor said.

The three economists' forecasts for new-vehicle sales in 2011 ranged from around 12.5 million units by Kontos and Silver to 12.65 million by Taylor.

How Silver sees it
The sales outlook from Ira Silver, chief economist of the National Auto Auction Association, in millions.

                                2011           2012
New vehicles          12.5             14
Used vehicles        38.5             40.5