Ask The Best And Brightest: Can The Used Market Stay This Crazy For Long?
About a month ago, TTAC’s Steve Lang hipped readers to the fact that used car prices had grown like crazy, and that the time to sell that old car had come. Now the mainstream media is starting to wake up and smell the 30-weight, and the wires are flooding in with stories of used car prices gone wild. The LAT reports that Kelley Blue Book values have risen an average of 16% per year in the 2008-2011 period. Autotrader saw 13 of their top-20 CPO models add at least a grand to their prices in the last month alone. And Bloomberg reports that 2011 BMW Dreiers and M3s now cost only $34 per month more than year-old models, and that new Corvettes can actually be had for $12 per month less than year-old models according to Edmunds.com data. Considering an Acura TL? New models are typically $18 less per month than year-old versions. So what’s going on?
New lease sales fell to 1.96 million in 2008 and 1.13 million in 2009, according to Manheim. Lease originations that averaged 2.78 million during the previous 10 years dried up as lenders such as GMAC Inc. and Chrysler Financial Corp. withdrew financing offers.
Leased vehicles’ input to used-vehicle supply will be 2.08 million units this year, a 40 percent drop from 2002 levels, according to Manheim. Off-lease volumes will keep declining through at least next year, to 1.53 million, Manheim says.
Sales to rental fleets, which fell to 1.13 million vehicles in 2009 from more than 2 million in 2006, may not exceed 1.5 million until after this year, according to Manheim. The 2011 contribution to used-vehicle supply from rental fleets will be about 1.4 million vehicles, a 30 percent drop from 2005 levels.
But here’s the real question: how long can this last?
Steve argued persuasively that prices were going to come down, and that fuel efficient used cars were going no-sale at auctions because of their high asking prices. But, consistent with TTAC’s out-of-the-mainstream opinions, a lot of analysts seem to disagree. Edmunds’ Joe Spina tells Blooomberg
I don’t expect any dramatic decreases in used prices for at least 18 months.
AutoNation’s Mike Maroone adds that
Used pricing will show “continued strength” [because] demand from price-conscious buyers that was already strong because of the slow economic recovery was exacerbated by Japan’s production disruptions and the shortages of new vehicles that followed.
NADA Used Car Guide automotive analyst Jonathan Banks tells autoremarketing.com
Looking ahead, we anticipate that light truck values will do well during the upcoming quarter primarily due to the stability in gas prices and very low used supply. We were already anticipating a 6-percent increase in truck and SUV prices from used supply alone. If the current gas price situation continues, there may be room for prices to increase even more
Manheim Consulting’s chief economist says
The shortage of low-mileage used models “will last for some time.”
But, given the market’s self-determining nature, these echoes of the “high used prices are here to stay” theme could in itself signal the end of the run-up. In the spirit of Steve’s brave look into the future, I’m wondering where you see used prices going over the next year or two.
More by Edward Niedermeyer
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High used car prices worked out for me in February. I got about $8,500 for my 06 Grand Prix when I could no longer feed it (for some reason it was returning 14-16 mpg consistently - and this was the base model). Unfortunately, I owed $9,700 on it, but most of the arrearage was killed with the rebate that I got on my new car. So I bought the new car for a little above sticker with an okay, for me, interest rate of 7.8%. My credit is on the high side of fair at around 650. I have a couple of pesky little things to get paid, but other than that not much else on it. I've only had an established "credit life" for 5 years.
Every now and then my economics major becomes useful. It's supply and demand 101. Supply of used cars at all price points is low. First, sales of 08s and 09s tanked so in that 2-3 year old range, the supply of used cars is much lower than typical. At the low end, cash for clunkers sucked a lot of servicible cheap stuff out of the market, so there is a shortage here too. The only area with relatively normal supply is in middle aged stuff, say 03s to 07s that were too expensive for C4C and sold well when new. On the demand side, steve is right - bad economy normally drives more people to used cars, either for price reasons or for financing reasons. The mid ranged stuff is probably in most demand now (late model too expensive and most people afraid of the old cheap stuff) which makes prices high from top to bottom. It is going to be 3 years before supply on late model stuff straightens out, and probably about the same for the economy to straignten out enough for more people to feel confident enough to take on that new loan or lease. So, for the next 3 years, nurse your ride or buy/lease new. But remember that the short supply of 08-09 cars will filter down through mid range and eventually cheap used car sections of the market, so it will be awhile to fully get the supply constrictions out of the system.