False Dawn: Rising Used Car Prices Do Not a New Car Sales Surge Make

Bloomberg (and a lot of other good-news-hungry outlets) are reporting that a recent surge in used car prices indicates that new car sales may soon rise. The theory: a falling supply of used cars and a glut of new cars will lead buyers back to the new car F&I guy. Of course, that assumes that there’s a falling supply of used cars. For that assumption, the MSM turns to . . . new car dealers: “A survey by Wachovia Securities analyst Rich Kwas showed that 42 percent of dealers report ‘too little’ used-car inventory.” Yes, well, they would do, wouldn’t they? As new car sales plummet, franchised dealers’ supply of used trade-ins declines by, oh, roughly the same amount. Or more.

As TTAC’s Hammer Time’s Steve Lang will tell you, there’s plenty of old iron out there. And LOTS of repos to come. Hundreds of thousands of them. Despite this supply, or because of it, there are some freakanomics in play. Even in this downturn, demand is seasonal. The rental fleets are certainly holding onto their cars longer and order less. But there is little chance of a sustained new car recovery until house prices recover. But let’s not let the facts get in the way of pro-car biz prognosticating.

“There is a very, very interesting inflection point where the financing on a new car becomes more attractive than the financing on a used car,” said Scott Painter, owner and founder of TrueCar.com.

True enough. However, to reach that point, manufacturers would have to dump their new inventory on the market at insane prices. (50 percent off C11 sales?) Of course, if people trade-in their old cars to buy these new cars, the used car supply will increase, which will drive down used car prices and make them more affordable. Making it harder to sell new cars. See how that works?