State to auction 350 used cars, trucks, motorcycles

GRANTVILLE, Pa. (WHTM) – More than 350 cars, trucks, and motorcycles formerly used by state agencies will be sold at a public auction next week. The offerings include 18 Kawasaki and Suzuki motorcycles and vehicles from Chevrolet, Chrysler, Dodge, Ford, Jeep, GMC and more. The auction begins at 10 a.m. Tuesday at the Manheim Keystone Auto Auction, at 488 Firehouse Road in Grantville. Registration opens at 8 a.m. and closes at noon. All vehicles are available for public in-person inspection at the auction site each day through Monday, from 10 a.m. to 4 p.m. More information and a complete listing of vehicles can be found on the Department of General Services website.

How Automation Will Crater Used Car and Truck Prices

As more new cars and trucks come equipped with standard autonomous safety features such as automatic emergency braking and lane departure prevention, the resale value of older vehicles is expected to plunge as they quickly become outdated. A recent analyst report from Morgan Stanley Research predicts a sharp decrease in used car values could leave consumers with lower trade-in prices and higher monthly payments on new cars with more automation. By 2021, used car values could drop between 20 and 50 percent, making it more difficult for owners to trade up for safer new models, according to the report. For example, if a vehicle’s trade-in value dipped as low as 50 percent, leaving the owner with less to offer up front, payments on a $35,000 vehicle with a six-year loan could rise from $403 to $483 per month, according to Morgan Stanley. “The used car is the consumer’s currency,” said Adam Jonas, an analyst at Morgan Stanley Research. Advanced safety technology — including the beginnings of self-driving capability — is expected to quickly become standard on many vehicles. Last year, 20 automakers agreed to make automatic emergency braking standard on almost all cars by 2022. Toyota and Lexus plan to make safety technology packages standard equipment on most of their models by the end of 2017. The Honda and Acura brands also are starting to make the technology standard on some of their models. “Standard safety equipment is coming in very rapidly,” said Egil Juliussen, a technology analyst at IHS Markit. “My guess is the marketplace is going to force everybody to do it so the government doesn’t have to mandate.” Industry analysts have said the proliferation of advanced safety technology will likely lead to fewer fatalities and serious injuries on public roads. The Race to Automation No vehicle can yet claim to be fully autonomous. Many, though, are equipped with advanced automated safety features that have appeared more quickly than originally anticipated. The Morgan Stanley report found that automatic emergency braking was included as standard equipment on 12 percent of new vehicles sold in 2016 and optional on 52 percent. Lane departure prevention was standard on 7 percent of vehicles and optional on 44 percent. These two features are the quickest way to increase safety and prevent crashes, Juliussen said. Some insurance companies offer lower premiums to customers who own vehicles equipped with automated safety features to encourage wider adoption, he said. While Toyota is adding autonomous safety features as standard, other automakers are taking a slower approach because offering safety packages as optional equipment contributes to profits, Juliussen said. Consumers typically pay an extra $2,500 to $3,000 for safety packages with automated technology, yet it costs automakers only about $450 to install them, Juliussen said. New safety features are one of the factors cited in the dramatic rise in the price of new trucks and SUVs over the past five years. But rising traffic fatalities in the U.S. may encourage new vehicle buyers to start selecting models that offer the technology as standard equipment, he said. The National Highway Traffic Safety Administration reported a 7.2 percent increase in traffic fatalities in 2015 compared with 2014, the largest since 1966. Used trucks on the dealership lot grilles Used Ford trucks at the dealership lot. (Photo: Ryan ZumMallen/Trucks.com) Another factor fueling public acceptance of the safety technology is the use of autonomous driving technology by electric car builder Tesla Inc., according the Morgan Stanley analysis. Tesla’s semi-autonomous Autosteer feature reduced the likelihood of a crash by 40 percent, according to NHTSA. The electric vehicle automaker said that its next-generation update will make its vehicles 90 percent safer than those without the technology. The company is planning to increase its production capacity with the release of the Model 3 sedan this year, and the Model Y compact SUV in a few years. By 2025 to 2030, Tesla will be able to gather 400 million miles of testing data per day, according to the Morgan Stanley report. Combined with the expected improvement of Autosteer and other automated features, Morgan Stanley predicts the company will accelerate the “obsolescence” of used vehicles. Wait and See But others believe the new safety technology is just part of the automotive development cycle and note that previous advancements have not depressed used car values. Several technologies that were once considered futuristic are now standard, such as air conditioning, anti-lock brakes and electronic stability control, ,” said Eric Lyman, vice president of industry insights for auto price forecasting firm ALG. “We didn’t see the vehicles without it suddenly were completely undesirable.” At the same time, buyers are often unwilling to go without technology like navigation and blind-spot detection once they’ve had it, which could become true for emergency braking and other advanced safety features, Lyman said. The moves by Toyota and Honda could be “a game-changer,” he said. Bundled safety packages offered at little or no cost would support the theory of “a greater divergence in values of vehicles that don’t have this content,” Lyman said. For example, the Honda CR-V will soon feature standard automated safety equipment, widening the gap between new models and the used ones without it, possibly forcing the price of used CR-V models to drop, he said. There will be a confluence when the majority of new vehicles will have advanced safety features and there will be a bubble of used vehicles reentering the market, Lyman said. “But again, I still don’t think it’s going to be the bottom falling out of the values.”

CarMax beats estimates on surge in used-car demand

CarMax Inc. reported a 8.2% increase in profit during the fourth quarter amid a surge in used-vehicle demand. But, the dealer chain signaled a continued decline in pricing as more pre-owned vehicle supply hits the market and raises concern about the health of the U.S. automobile market. The Richmond, Va.-based retailer said profit grew to $152.6 million, or 81 cents per diluted share in the fourth quarter on $4.05 billion in revenue. The 9% revenue gain compared to the same period in the prior year came as the company sold 176,000 used vehicles during the period -- same-store unit sales increased 8.7% over the period. –– ADVERTISEMENT –– Analysts had forecast 79 cents per share in profit for the quarter and $3.9 billion in revenue, according to FactSet. CarMax shares were up 2.4% at $58 in recent premarket trading. CarMax is working to offset a recent decline in used-car values that is following a long run of strong pricing. The average price of a used vehicle fell 1.6% to $19,435 in the fourth quarter, and decreased by 1.7% to $19,586 in 2016 compared to 2015. As off-lease cars begin to flood the lightly-used-car market, auto makers are offering record high incentives on new vehicles, potentially narrowing the gap in pricing between a new and used vehicle. While the margins on used-car sales are higher than new-car sales, CarMax could be under pressure if a pricing war among auto makers accelerates. The company, which has 173 stores across the U.S., plans to open 15 stores this fiscal year and more than a dozen in the following fiscal year. Write to Adrienne Roberts at Adrienne.Roberts@wsj.com

GM Joins Ford Worrying About Declining Used-Car Prices

General Motors Co. said a glut of used cars will return to market after their leases expire and drag on its finance unit this year, following similar warnings by peer Ford Motor Co. and lenders such as Ally Financial Inc. The prices of used cars in GM Financial’s leasing portfolio will decline about 7 percent this year, GM Chief Financial Officer Chuck Stevens said on a conference call with analysts Thursday. The value of used GM vehicles have depreciated faster than expected in the first quarter, particularly with crossovers, and prices will fall as much as 3 percent next year. “Leasing became the flavor of the month,” Maryann Keller, an auto industry consultant in Stamford, Connecticut, said by phone. “This is a consequence of the behavior we’ve seen.” Ford touched off concerns about declining used car prices late last year, when the automaker cut its lending unit’s profit forecast by $300 million. The National Automobile Dealers Association’s used vehicle price index plunged in February by the most since November 2008, spurring concerns about the fallout for automakers, lenders including Ally Financial and car-rental companies such as Hertz Global Holdings Inc. When auto lenders lease out vehicles, they charge the customer a monthly payment and make an assumption of the car or truck’s value when it will be returned and re-sold as used. If vehicles are depreciating more than expected, losses can pile up. Automakers and lenders then may have to begin offering less-attractive terms on new leases. GM rose 0.6 percent to $34.19 as of 12:40 p.m. in New York trading. The shares have slipped 1.9 percent this year, trailing the 5.3 percent rise in the S&P 500 Index. Read more: Why America’s auto debt boom fuels bubble talk The deteriorating value of smaller sport utility vehicles such as the Chevrolet Equinox is a surprise because the segment has been one of the fastest-growing within the U.S. auto market. Crossovers are about 45 percent of GM’s lease portfolio, followed by trucks and SUVs at 30 percent and passenger cars making up the rest. The declining re-sale values are manageable and GM Financial’s profits will still rise this year, Stevens said. “This is something that we need to closely, closely monitor and pull every lever,” he said. The most important market news of the day. Get our markets daily newsletter. Enter your email Sign Up Used-car prices are falling faster at auction -- where automakers typically dispose of off-lease vehicles -- than they are on dealer lots. CarMax Inc., the largest seller of used-vehicles in the U.S., said Thursday that average wholesale vehicle selling prices fell 6.8 percent to $4,910 in the quarter ended in February, while the average price of used vehicles to consumers slipped only 1.6 percent to $19,435. GM Financial should still be able to meet its profit goals, Stevens said. The automaker has projected increasing the unit’s profit to more than $1.6 billion by 2018. The unit reported $913 million in adjusted pretax earnings last year.