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3-year-old used vehicles an enigmatic pool, new Edmunds report says

September 7, 2018
Three-year-old models constituted about one-fourth of the used cars sold at franchised dealerships from April through June this year, according to a new Edmunds report. 
The average turn rate on used cars during Q2 was 38 days, which Edmunds said was the fastest quarterly turn rate in at least 13 years.
As one might expect, the leasing/off-lease market can often impact this slice of the used-car population. That was particularly evident when it came to the wide spectrum of differences when comparing new-car ATP to prices of the same 3-year-old used cars — both in terms of segment and model comparisons.
In fact, Edmunds found that the price gaps on the segment side were as low as 27 percent for midsize trucks, but as high as 48 percent for luxury midsize cars. 
That in and of itself is another paradox, of sorts. 
"With consumer preferences leaning more toward SUVs and trucks, you’d assume that the savings would be more clear-cut, and you could apply a general savings figure based upon overarching SUV, truck and car vehicle categories," Edmunds said in its report.
"That isn’t the case. The dynamics of 3-year-old used vehicle values are primarily dictated by the supplies afforded to the market from leasing, and within each category, volumes differ," the report adds. "Specific models that might have been leased in higher volumes compared to their competitors are also a factor."
Speaking of which, Edmunds looked at the same price gap for the 20 best-selling used cars on the market. It found a similar gap, with the price difference of 48 percent for a BMW 3 Series at the top of the list and the 29 percent price difference for the Toyota RAV4 at the bottom.
Interestingly, the residuals of the RAV4 contributed greatly to the low price gap, despite the vehicle being a "heavily leased" model when new.  But lower residuals led to the opposite happening with the 3 Series, another heavily leased vehicle.
"A vehicle such as the Toyota RAV4 was a best-seller when new, and even though it was heavily leased three years ago, the strong residual values of this vehicle combined with the healthy overall demand in the compact SUV segment don’t allow for significant savings," Edmunds reported.
"On the other end," analysts added, "we see that BMW’s 3 Series, a legend in the compact luxury car segment, faces weakened residual values because of high lease volumes in a segment that is no longer seen as the entry point into the luxury market. But those who regard the 3 Series as the luxury compact sedan to own can realize a wealth of savings.
"Going forward we could expect these new-versus-used dynamics to continue in a predictable manner. However, if tariffs are enacted against specific models, these savings figures are bound to change and are certain to test customer loyalty."
 
 

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