Digital Dealer - January 2020 - 16

DEALER OPS & LEADERSHIP

Vehicle Valuation

By
David Paris
Senior Analyst,
J.D. Power Valuation Services

Discontinued Sedans Demonstrate
Remarkable Staying Power
in Terms of Valuation

In preparing for 2020, the

automotive industry has been
making a list and checking it twice
to determine which vehicles will
continue their model cadence into
the immediate future, and which... will not.
Over the past few years, we have seen
scores of announcements for the planned
discontinuation of vehicles - especially
sedans - as the industry calibrates its
portfolio to meet new vehicle purchase
preferences. On the mainstream side of the
market, recently sedans like the Taurus, Focus, Fiesta, Cruze, and Impala have either
joined or are expected to join the list of discontinued models. This trend will continue
in 2020 as automakers are concentrating

their efforts on expanding SUV production.
This opens an important question about
what happens to the valuation of vehicles
that are - effectively - orphaned.

Shrinking Supply and Surging
Demand Support Discontinued
Sedan Vehicle Valuation
The good news, according to J.D. Power
analysis, is that discontinued passenger
sedans are tracking to be on par with vehicles that will continue to be available in
the new-car market. In general, used sedan
models have become more important than
ever for dealers and consumers alike.
Dealers, for example, are enjoying a
plethora of late-model used units, packed

with great technology and safety features
that are generating solid proﬁt margins.
Consumers are happily purchasing these
used units at discounts that range anywhere
from 30 to 50 percent from new model.
As automakers continue to announce
plans to stop production of traditional passenger cars, supply constriction in the used
markets is buttressing passenger vehicle
valuation performance in the aftermarket.
It is a trend that appears to be getting demand support as well. Used passenger cars
are more popular than ever, which is why
aftermarket prices for small, compact and
midsize passenger vehicles are rising by six
percent and nine percent in 2019 compared
to the same period in 2018.
The fact that these dynamics are holding
true for both non-discontinued and discontinued models is remarkable. It bucks
the history of valuation performance of
orphaned vehicles, which have tended to
experience value retention challenges.

Discontinued Vehicles as CPO
Candidates

Looking Ahead
J.D. Power's Predictions
Looking out three years, passenger car values are expected to
remain strong for well-regarded discontinued vehicles from Ford and
General Motors brands alike as fewer new sedans are sold.
Compact and midsize car prices are expected to strengthen

by two percent or three percent through 2022. This is in stark contrast to
the compact and midsize SUV segment, where we expect the used-market
prices for these models to weaken by around ﬁve percent compared to
current levels due primarily to increases in supply.

[ d i g i t a l d e a l e r. c o m ]

As dealers explore their options for maximizing returns on used vehicles, discontinued vehicles may emerge as attractive and
proﬁtable candidates for Certiﬁed PreOwned (CPO) programs. Generally speaking,
dealers generate higher proﬁts on CPO sales
compared to conventional used sales and
tend to move off the lot more quickly. For
discontinued vehicles, CPO programs - and
the value-added service and maintenance
support that is included - may present the
pincer effect of offsetting consumer concerns about model discontinuation, while
elevating margins.
For more insight into industry trends, visit:
digitaldealer.com/trending-auto-news/

January 2020

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Digital Dealer - January 2020

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