By on August 11, 2011

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.

 

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26 Comments on “Ask The Best And Brightest: Can The Used Market Stay This Crazy For Long?...”


  • avatar
    Dimwit

    This is a blip. By the spring things will have worked themselves out again. One thing that the MSM never mentions is that the thread is getting rather thin for a lot of people in this economy. There will be a reluctant flood of cars into the pool as people try to lighten the load.

    • 0 avatar
      OldandSlow

      Anyone trying to unload a car during the first two years of ownership due to problems paying their bills are usually underwater on their loan, especially if they got it with a low credit score.

      Also, with the hiatus in leases due to the financial crash, their are fewer low mileage, nearly new vehicles coming into inventory compared to let’s say five years ago.

  • avatar
    aristurtle

    Man, I hope not. I needs me a car by winter, my motorcycle doesn’t do too great on snow.

    edit: interestingly, used motorcycle prices are pretty low right now.

    • 0 avatar
      Syke

      So are new motorcycle prices (other than possibly Harley’s). The motorcycle business is in the toilet at the moment. Given the current economy, buying an absolutely expensive toy is not exactly a wise decision. And a sports car is a less risky purchase, because anyone can use one of them for day to day commuting if they have to. As you well know, to do the same with a motorcycle, year round, takes a pretty dedicated individual – assuming the local climate even allows the possibility.

      • 0 avatar
        Ubermensch

        I have seen someone commuting to where I work in Iowa year round in a Ural 2-wheel drive motorcycle with a side-car. So yes, it is possible with the application of eastern European iron and, I suspect, some really warm undergarments.

      • 0 avatar
        aristurtle

        I’ve got a hell of a cold tolerance (living about ten degrees south of where you grew up helps) so climate doesn’t bother me as much as traction. Single-track vehicles and icy roads don’t mix.

        The 2WD Ural is neat but it’s fundamentally 1940s technology with some modern bits (like the front disc brake) hastily bolted on. The fall of communism did help the build quality, though. Hmm…

  • avatar
    gslippy

    Used car prices have to come down.

    Consumers will quickly realize that the a reduced warranty and higher finance charges make the used car less attractive than a new one, especially if they’re only a few thousand dollars apart. This will reduce demand for used cars, and therefore their prices will drop in order to move them.

    • 0 avatar
      Patrickj

      I tend to take after my father, who never believed that it was worth buying any used car for more than half the price of the corresponding new one.

      • 0 avatar
        nrd515

        My dad was burned when he was about 18 on a used car, and he swore he would “Never buy anyone else’s trouble again!”, and he didn’t. He would trade every two years, almost like clockwork. Those cars ranged from a horrible ’63 T-Bird that blew head gaskets almost every 8 weeks, to a ’69 Sedan De Ville that was totally bulletproof until he passed out due to heart trouble, and put it into a pole in 1973. He came out of it with a couple of loose teeth and a broken nose, but the car was pulverized, the engine even tossed the rods out of it. Just before he died, the car prices started going up and up, and just a few weeks before he died, he and I were looking at a car lot one Sunday morning, and he couldn’t believe the sticker was over $6000. He wouldn’t believe the car I bought last November stickered for over $37000!

    • 0 avatar
      Mathias

      Consumers can realize this and still not be able to get enough credit to buy a new car. I think this is a big part of the problem, more even than a desire to ‘save money.’

      Plenty of good $3,000 cars in the market right now. They all cost six grand…

  • avatar
    burgersandbeer

    Didn’t Steve also argue about a week ago that used prices will stay high as long as people with less than stellar credit can’t get access to loans?

    https://www.thetruthaboutcars.com/2011/08/hammer-time-aberrations/

    I guess whether used car prices come down any time soon depends on how much sub-prime borrowers support the market.

  • avatar
    Sinistermisterman

    Who you gonna trust? Two journo’s (no offence), an analyst (hmm), an economist (hahaha!), or a guy who actually buys and sells used cars? I’m with Steve on this one.

  • avatar
    pleiter

    Red-Ink-Rick is not shoving them out the door anymore. Push to sell is at the speed of government. How much do used car prices factor in the Consumer Price Index ? You know, the one that says there is no inflation ?

  • avatar
    Conslaw

    Wouldn’t you know it, my daughter turns 16 in the year that brings the biggest run-up in used car prices in a generation. I guess I’ll have to get a new car and give her my old one.

    • 0 avatar
      nrd515

      My friend is in the same boat. His daughter is going to start college in Jan, she’s taking 6 months off, in Europe. She really needed it. When she comes back in Oct, she will need a decent car, so he will be buying a new one, and giving her his present car, a 2 year old Malibu. He was looking for something 1-3 years old for her and the used car prices are crazy. She almost wound up with a new car instead! But he decided he should get the new one, since he’s paying for her rent, etc. (She’s getting a full ride as far as school goes) He wants a Mustang GT really badly, but he’s probably going to go the economy car route.

  • avatar
    3800FAN

    I live in the Boston area and I saw this madness last month when it came time to replace my 94 regal after being hit. About a year ago I was looking at 02-04 altima Se sedans, mazda6 s. They were going for about $6500 then. Now they start at 8 with 120+k miles. A 4-banger altima from those years starts at 7 with skyhigh miles and those are known for lots of engine problems. Don’t even look at used accords or camrys. The cheapest 01 camry I could find was going for $6500 with 170k miles!!!

    In the end I got an 01 Grand Marquis. It’s reliable, just a 3 mpg drop from the Regal, and was cheap.

    Oh also, another sign of how high prices are is the $$$ I got for the buick after it was totaled. Safety Insurance gives you the retail value of your vehicle based on current prices in your area and it’s condition. Mine had 192k on it, in good condition, and it fetched $1460. Yep that’s how much a 17 year old buick regal with 192 k miles is retailing for.

  • avatar
    joe_thousandaire

    It all hinges on leasing, if leasing comes back into vogue and attractive lease deals start appearing again used car prices will go down, but not until those leases start running out in a couple years. I would bet on used car prices staying at an elevated level for few more years, though I don’t necessarily think prices will continue to go up other than on the most fuel-efficient models.

  • avatar
    eldard

    Simple. But a used that nobody wants. Like a Volvo. They depreciate like a rock.

  • avatar
    redmondjp

    My vote is that used car prices will stay high for several reasons:

    1) Remember that post awhile back about people coming to our wholesale car auctions to buy good used Toyotas and Hondas and shipping them overseas? That’s not going to stop happening, especially as some of these countries continue to get richer while our country gets poorer.

    2) Related to the above, our dollar is worth much less than it used to be, so the REAL cost for necessities such as basic transportation goes up. Check out the package sizes at your local grocery store if you don’t believe me.

    3) The real unemployment rate in this country is somewhere around 20% (+/-). Just today they released the “good” news that last week’s new unemployment applications were BELOW 400K. Personally, that scares the crap out of me. Using the Great Depression 1.0 time scale, we are in 1932 now (“next year will be better, right?”). More and more Americans are flat-out unable to buy new. This will increase demand for good used cars.

    Example: ANY non-riced Honda Civic with under 200K miles built over the past 20 years in still in high demand. Why? Inexpensive, reliable, economical, easy-to-maintain, basic transportation.

    I really want to be wrong about this, btw!

    • 0 avatar
      OldandSlow

      RedmondJP – Unfortunately, you are not wrong. As I look around at my neighbors, many are under employed, treading water in part time jobs, as well.

      • 0 avatar
        rnc

        Just wait until all of the people in thier 50’s who lost thier jobs (probably won’t be able to ever find an equiv.) and are living off thier cashed out early, decimated 401k’s, trying to hold things together, when that money is gone, then we will reach rock bottom as those were the people who were supposed to carry a good bit of the economy for a decade and the decade will be lost (I got rid of my discovery and bought a 2001 saturn with 40k miles for $2,000, when that one dies will buy something of the same), sold my house in 2007, broke even (actually lost after closing fee’s, but best decision I ever made) and will not buy again until I have atleast a 50% down payment and some sort of job that has some sort of security (so there’s a really good chance that I’ll never buy a new car or house again). They need to let the economy reset, let all of the major banks fail (they’re already insolvent), break them back up into retail, investment and insurance and instead of spending hundreds of billions on defense projects that provides tens of thousands of jobs, spend it on our decaying infrastructure that would employee millions. Won’t happen until it’s forced to happen and that might not be far away.

    • 0 avatar
      Neb

      Tis true. The auto-nation guy’s reference to a ‘slow economic recovery’ is baffling in the face of an actual frickin’ depression. I think Mr. Lang is right that cheap financing might ease the situation a bit, but until the economy recovers, it will mean less people buying new, more people buying used, and higher used prices.

  • avatar
    tankinbeans

    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.

    • 0 avatar
      Ubermensch

      No offense and I don’t mean to preach, but you should have just fixed what was wrong with your Grand Prix and paid it off instead of taking on more debt. Especially someone with such a low credit rating. Also, you should NEVER pay over sticker for a new car, that is insane.

      You think that high used car prices worked out for you, but I’m sorry to say you screwed the pooch on this one. Live and learn.

      • 0 avatar
        tankinbeans

        No offense taken. I’m trying to learn and I know I’ve made my share of mistakes and will continue to make them. I am human after all. Right now my goal is to get my current car paid off and keep it until the warranty runs out and maybe longer.

        The problem with the GP was that I didn’t know what the problem may have been. It drove fine, and shifted fine, but the mileage just flat sucked.

        I’m not as financially illiterate as I seem as the price of the new car payment plus gas is still cheaper than the other car plus gas would have been. Right now I end up having to live in the short-term.

  • avatar
    jpcavanaugh

    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.

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