Timing isn’t everything, but it is pretty damn important when buying high dollar assets.
Back in April 2009 I told folks that now would be an ideal time to buy a new car. Demand had slacked off over 40% from the record highs. Dead and dying brands were still in the glut of recessionary despair. The credit markets, the only financial source for a lot of car buyers, were a shadow of their former selves. Plus Uncle Sam was all too willing to subsidize the gluttons amongst us with Cash for Clunkers in about a month or two. It was the perfect storm for those of us who needed cheap new wheels for the long run. But today…
This is the perfect time to sell if you happen to have an extra car you no longer need.. Not only have used car prices reached their historical highs. But a lot of the barriers to high used car prices are eroding. I will even go so far as to say we are hitting the peak of used car demand. Why do I say that? A lot of reasons.
1) Cheap leases, better values
We are no longer at the point where the domestic models have depreciation costs in the 50% range after three years. That Chevy Cruze you may be considering now may be forcasted to maintain 65% of it’s value after 36 months. Or possibly even more.
What this means is that GM and Co. may lease that vehicle at a price far lower than the buy-here pay-here lots can finance their 2003 thru 2007 models over a 3 to 5 year period. In the next few months I believe you will continue to see more banks and auto finance companies offer more aggressive financing terms for these vehicles as well. We’re not off to the races yet. But the market is turning the corner.
Stronger residuals for new cars will make them ‘better deals’ in the marketplace, and more buyers in time will be able to access those deals.
2) Youth and economy
Back in 2009 you had a lot of older and uncompetitive vehicles in the marketplace. Aveo, G3, Cobalt, Focus, PT Cruiser, and all things Kia and Mitsubishi had flooded the rental and rental markets. A lot of the mainstream models across the board were either middling redesigns or supersized to the point of SUV-like blandness. Obviously the Camry wasn’t exactly breathtaking in it’s bulbous blandness… but the Accord was panned for… well.. being too much like a Camry.
What does that have to do with used car prices? An awful lot. See, if you think you can get the same type of car for a lot less money… that’s exactly what you’ll do. The utter lack of groundbreaking vehicles in the marketplace back in the spring of 2009 made most late model cars seem like virtual equals. Used car prices on average have shot up over 30% over the intervening three years. Three year old models from 4 Runners, to Explorers, to Priii are now up over 50% from that time. Even the past month has seen prices shoot to a point that I would consider the ‘bubble stage’.
May vs. June 2011 Trade-In Values of Some Popular Small Cars
|2007||Hyundai Accent Hatchback GS||$5,125||$6,000||$875||17%|
|2009||Ford Focus S||$9,375||$10,700||$1,325||14%|
|2005||Subaru Impreza RS||$6,650||$7,575||$925||14%|
|2010||Honda Civic Coupe DX||$12,300||$14,075||$1,775||14%|
|2009||Chrysler PT Cruiser||$9,225||$10,350||$1,125||12%|
Source: NADA Used Car Guide (Car values are based on average condition.)
The good news is that the new car market should change all this in the next 12 months. The Focus, Cruze, Civic, Yaris, Versa, Camry, Accent, Sonata, Elantra and Jetta will be all new or in their early model cycles by early 2012. That mass of models alone will spark a lot of new interest in new cars.
The domestics in particular have the benefit of marketing fewer brands and models which will help their sales. Plus virtually everything out that will be out there by that time will benefit from the recent high (for now) and stable (for now) gas prices.
Buyers are now factoring $4 gas into the equation when it comes to buying a car. From that viewpoint, I believe that this new generation of vehicles will represent far better overall values than the ones that preceded them. There may be a few exceptions. But the jump in quality, technology, and fuel efficiency will be far greater by the spring of 2012 than was the case a couple of years ago.
When new cars become the better proposition, the used car becomes the less desirable alternative. If the credit markets continue to strengthen for the Big 3 you should expect far less demand for used cars.
3) Irrational exuberance:
Even with the Japanese manufacturers ramping up their domestic production back to near normal levels, the market has remained at all time highs.
Trust me, it will not last. In fact the illusion that until recently was $5,000 plain-jane 10 year old Buicks and based out Y2K Echos retaining half their new car price is becoming kaput. More of these trade-in’s are no-saled at the auctions due to the high asking prices..
I have seen a few of the large scale dealers buy far fewer vehicles at the auctions over the last couple of weeks. This is due to lack of demand. If people need to finance vehicles they will always pay a premium for it. People ‘need’ a car. But when they don’t need one the market skitters for a few weeks at the auctions with lots of ‘no-sales’, as it is right now. Then it finally tumbles.
Atlanta may be just a smudgy dot in our country. But it represents a massive center for automotive remarketing in the Southeast. Millions of cars get sold here and when buyers begin sitting on their heels at the auctions, the sellers soon realize they are sitting on major losses.
I think we’re on that precipice right now.
So if you are looking to sell a car taking up nothing other than money and space, now may be the time.