Report: Used vehicles with six-figure odometers holding more value

Drivers who are trading in their vehicle might not expect to get too much in return after the odometer crests 100,000 miles. There is a perception that buyers will shy away from such vehicles, expecting that they will be plagued by mechanical gremlins or suffer an irreparable breakdown within a few years.

But a new report from the automotive site Edmunds.com suggests that there is actually an increasing demand for high mileage vehicles. With a large number of newer off-lease vehicles entering the used vehicle market, buyers are willing to purchase a vehicle with more miles on it in order to stay within their budget.

In its Used Vehicle Market Report for the third quarter of 2017, Edmunds determined that values for vehicles with odometers over 100,000 miles depreciate more slowly due to their short supply and high demand. The rate of depreciation for vehicles between 100,000 and 150,000 miles was incremental, and occurred at approximately the same rate as depreciation between 50,000 and 100,000 miles.

Ivan Drury, senior analyst at Edmunds, said depreciation is steepest during the first 20,000 miles. After about 40,000 miles, depreciation in used vehicles tends to occur more slowly and steadily. While the typical vehicle between the model year of 2010 and 2012 lost about half of their residual value after hitting 20,000 miles, they still retained between 33 percent and 41 percent of their value after 100,000 miles.

"The 100,000-mile myth is really just a psychological barrier that more and more car buyers are getting past," said Drury. "Following the recession, many people were forced to hang on to their vehicles longer than they may have wanted to simply because they couldn't afford to get a new car. People then saw for themselves how much vehicle quality has improved and realized that a car with 125,000 or even 150,000 miles still has a lot of life left."

Midsize SUVs held more of their value, due to higher buyer demand and the perception that they would have more life remaining than cars. The average 2014 model year midsize SUV with 100,000 to 110,000 miles retained 45 percent of its value, compared to 39 percent for a midsize car with the same mileage.

The popularity of older and higher mileage vehicles was chiefly visible in their time on the market. The fastest selling used vehicles were 2010 models with either 20,000 to 30,000 miles or 140,000 to 150,000 miles; both typically sold in 30 days. By comparison, 2016 and 2017 model year used vehicles with fewer than 10,000 miles typically sold in 60 and 61 days, respectively.

Regardless of mileage, a 2010 model year used vehicle sold in an average of 34 days during the quarter. The typical period was 42 days for 2013 model year vehicles and 51 days for 2016 model year vehicles.

"Even though the number of off-lease vehicles entering the used market is starting to level off, the average price of a used vehicle is still at a record high because demand also remains strong at the lower end of the market," said Drury. "While the oversupply of newer vehicles is good news for buyers who can afford them, there's still a very large segment of the population who just want an affordable vehicle to get them from A to B, and those are becoming much harder to find."

The average mileage of used vehicles for sale has been steadily dropping, as the popularity of leasing has returned many late model vehicles with low mileage to the market. Since the third quarter of 2012, the average used vehicle mileage has fallen 14 percent. In the third quarter of 2017, the average used vehicle for sale in the United States had 52,648 miles on the odometer.

The report suggests that used vehicle prices have started to level off. The average price for a used vehicle climbed 15.7 percent from the third quarter of 2012 ($16,600) to the third quarter of 2016 ($19,200). However, it was up only 0.9 percent to $19,400 in the third quarter of 2017. Edmunds says sales of used vehicles that are three years old or younger have stabilized, and that the recent price increase is due to more expensive off-lease SUVs and light trucks that are becoming more prominent on used vehicle lots.

Edmunds determined that there were 9.36 million used vehicle sales in the U.S. between July and September. This was down from 9.67 million in the third quarter of 2016, with the report attributing the decrease to fewer sales in Florida and Texas after they were hit by major hurricanes.

A total of 678,960 sales in the quarter, including 23 percent of franchise used sales, were certified pre-owned vehicles. These vehicles tend to be off-lease inventory.

In the near future, Edmunds expects that the values of off-lease used vehicles will likely drop due to market saturation. The report says this type of vehicle might become more popular once its price becomes more competitive with older, higher mileage vehicles.

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