By on May 12, 2017

Bright colors and lowered prices try to attract customers to a California used car lot

A surge in vehicles coming off lease agreements has boosted used vehicle inventory in the United States — a trend that’s proving to be good news for dealers and a headache for Ford, General Motors and FCA.

Three or four years ago, used vehicle inventories were at a low point. U.S. automakers weren’t offering bargain leases during the recession and were apprehensive to begin doing so in the years following. Such isn’t the case anymore, with an estimated 12 million low-mileage vehicles set to come off lease by 2019, according to Reuters. Customers leased those vehicles between 2014 and 2016 when automakers experienced a sales and leasing boom.

For consumers, a saturated used car market is more than welcome. Carmel, Indiana-based auction firm KAR Auction Services told Reuters used vehicle prices at dealer auctions fell about 3 percent last year and will fall another 3 percent annually in the next two years. Automakers, who sell off-lease vehicles to auction companies such as KAR, have experienced a similar trend. GM and Ford said used car prices fell 7 percent year-over-year in the first quarter of 2017 and GM predicts 7 percent decline for 2017 compared to 2016.

Automakers are feeling the burn from investors with such a scenario. In-house brokers estimate how much a vehicle will be worth once its lease term has concluded, so if the vehicle sells for less than their estimate, profits will dip.

As reported by Reuters, Ford was recently forced to lower the pretax profit estimate for Ford Financial Services by $300 million due to poor resale values for off-lease cars. Bargain used car prices can also make it harder to sell new ones, and with auto sales plateauing after seven straight years of growth, it certainly seems the industry is cooling off.

Regardless, car companies are powering forward with low-price agreements. Data obtained by Reuters indicates leases accounted for 31.06 percent of new car sales in the first-quarter of this year, which is less than half a percentile less than the record of 31.44 percent set in 2016. It’s a bit of a worrying trend, but serves as good news to those who may be in the market for a used vehicle in the next three years or so.

[Image: Bike Tourist/Bigstock.com]

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72 Comments on “Used Car Prices Falling Amid Stock Overflow...”


  • avatar
    deanst

    Percentile is usually used in reference to statistical distributions – the word you wanted was percent.

  • avatar
    mike978

    I recall an article by Bark who said I believe that used car prices were unlikely to fall much and lease vehicles were not a problem. Who is right?

  • avatar
    87 Morgan

    The real problem is going to create is for those who did not lease, but purchased and, of course, took advantage of the great low rate loan for 75 or 84 months. Those individuals who need to trade 3 years in to their 7 year loan will be in a real pickle.

    • 0 avatar
      pragmatic

      How many need to trade as opposed to want to trade?

      • 0 avatar
        87 Morgan

        Mostly the need/want is triggered by a real or perceived life event. Based on what I am seeing, I would speculate that it will be people trying to downsize from their big payment on a CC pick up for something more fuel efficient with a smaller payment. Won’t work as they can’t carry the negative equity to the new car and achieve a lower payment.

        Just a guess though.

    • 0 avatar
      FormerFF

      Why would you have to trade? Cars are durable, keep driving it. I had my last two 10 and 12 years respectively, and they still had some life in them when I turned them loose.

      • 0 avatar
        highdesertcat

        Why did you turn them loose?

        • 0 avatar
          Mandalorian

          This. I buy new and keep for the long run too, by time I’m done with them they’re barely worth anything so fluctuations be damned.

          Only in this country do people get “bored” with a late-model car and HAVE to trade.

      • 0 avatar
        Scoutdude

        Well in some cases people’s needs change unexpectedly. Get someone knocked up and Miata isn’t always the right answer any more and their are all sorts of other reasons that one really might need a different type of car. On the other hand things don’t change like that for lots of people so they can just stick it out until it is paid off or they at least have some equity.

    • 0 avatar
      John Horner

      Nobody needs to trade in a 3 year old car.

      Now if you want to make the point that someone who totals their 1-3 year old car might find themselves unable to pay off the loan with the insurance proceeds, you might be on to something.

      • 0 avatar
        JohnTaurus

        So, nobody has a baby, ever. Nobody’s commute changes, nothing ever changes in peoples lives during their car ownership. Does. Not. Happen.

        • 0 avatar
          duffman13

          @ JohnTaurus

          On this, I resemble several of these remarks

          > nobody has a baby

          My wife was in a Mazda 3 Hatch, and thought it could baby. In reality, put one rear-facing car seat in it and whoever is in front of it is eating dashboard. Throw a stroller that can hold an infant carrier in the hatch and you just lost your entire cargo hold. Yeah, it can baby if you don’t mind that it is a 3-seat car, and the front passenger seat is now your cargo area. We might have been able to avoid a vehicle purchase getting a midsizer off the bat, but we thought a hatch would be good enough for 1 kid.

          > Nobody’s commute changes

          We ended up getting her a CUV and I started using the 3 as a commuter to keep miles off my S2000. I drive 80-90 miles a day, up from 30 as of 3 years ago. The 2.5 is thirsty (27-29mpg highway) and it is loud even with good tires.

          It has been paid off since late 2014 and has been reliable and generally a good enough, but the life changes we’ve went through definitely necessitated different conveyance once, and at this point the only reason I’m still driving it is because it is paid off.

          If it was only 3 years old, I was in a positive equity situation, and the payment would stay the same, I would jump ship in a heartbeat. No payment>payment, and that’s the only reason it’s still here.

    • 0 avatar
      HotPotato

      Hey, I resemble that remark.

      If I knew then what I know now, I might have leased.

      • 0 avatar
        Mandalorian

        Yes, obviously people’s needs change but the vast majority out there are not driving severely compromised vehicles such as Miatas. Even with something like a baby, a lot of folks buy a family vehicle and keep one of their existing vehicles, not cash out completely.

        • 0 avatar
          Lou_BC

          Change is usually predictable. Even if a baby happens you still got nine months to get organized for larger vehicle. As Mandalorian has pointed out, you still can get by. I got rid of my F250 reg cab truck more because it was near death than because we had a second child.

  • avatar
    Tele Vision

    Save up. Do research. Buy used. Pay cash.

    I bought my 2007 CTS-V for CDN$15,000 a few years ago with money I saved over two years. No payments and no interest. I plan to keep it for a very long time and have budgeted to do so.

    In truth I was looking for an NA Miata but one in decent shape was the same price as the V was listed at, but with 25% of the power and 50% of the doors.

    • 0 avatar
      JuniperBug

      Where are you shopping where an NA Miata costs $15k?

      I paid $9,000 for my NB 6 years ago right at the peak of spring buying season in Montreal, and that was substantially over market because of its condition. I looked at cars in very nice shape which had never seen a winter with ~100,000 km going for around $7,000. Again, 6 years ago. If you’re dead-set on an NA, which have bottomed out in price and are on the way up, 2 minutes of searching online just now already yielded a nice-looking ’93 with 150,000 km for $5,500 and a ’95 for $4,000.

      I’m not saying that a CTS-V isn’t a cool car for the kind of money you paid, but comparing an NA Miata with one in basically any apples-to-apples respect doesn’t make much sense to me.

    • 0 avatar

      Depreciation is really the price of a warranty.

      If I took the new value of my CTS, $50k, and the used value, $16k, add my $3k in general repairs, I’m still $30k to the good. That is a lot of money to pay for a warranty. Since my cars are out of warranty by year two, that is a LOT of money to pay for a warranty.

      • 0 avatar
        mike978

        That $20k is paying for more than a warranty and you know it. It gives you three years more mechanical life, it lets you buy new and know the history of the car, it allows you to choose the exact options/colors you want.

        • 0 avatar
          28-Cars-Later

          I could buy three to four clean to average running/inspected automobiles for the price of your quoted warranty.

        • 0 avatar

          Only if you are buying a custom build, and waiting for it. Today, you can pretty much find the car you want used as well as “whats on the lot now this deal only applies to cars in stock”.

          • 0 avatar
            Mandalorian

            Don’t forget that $20k covers quite a bit of wear and tear. There’s a reason the standard millage rate is 53.5 cents a mile, and it’s not just gas. That is substantially less wear on the vehicle. Obviously, it doesn’t cover the entire distance in this particular anecdote, but it narrows the gap.

  • avatar
    SuperCarEnthusiast

    I just got done looking at a 2015 Tahoe with 26K miles on with LTZ trim level that had a MSRP of $75K. The dealership price is only $48K. I almost jump at buying it! Just so, so cheap! I may go back and buy it! I was going to wait to see what the 2018 Expedition and Navigator pricing would be but at these prices; it is a sell!

  • avatar
    dusterdude

    Even if article is right, a 3% drop per year is not overly exciting ie on a $15000 vehicle you’d save $450..

    • 0 avatar
      28-Cars-Later

      $450 on your 20 unit used inventory @ 15K retail /10-12K wholesale apiece is $9,000 is lost revenue and resale valuation. Per year. Some shops this is enough to put them in a dangerous place, especially with ever rising costs outside of the business.

    • 0 avatar

      Yes but that was one auction company it notes Ford and GM as showing a 7 percent drop in the first quarter and predicting another 7 percent so 14 percent. Which is a decent drop

      • 0 avatar
        28-Cars-Later

        14% in two quarters is huge, Ally might be the bagholder on some of those leases.

        • 0 avatar
          87 Morgan

          Ally will hold some, US Bank has/had been more aggressive in the leasing space in the GM dealerships in this part of the world (west).

          After the demise of GMAC and Pontiac the folks at Ally, whom are the same as GMAC, have been fairly restrained from using aggressively high residuals. I think the Lux brands will have a bigger issues due to aggressive residuals that kept payments down. BMW comes to mind.

      • 0 avatar
        Scoutdude

        They aren’t projecting a 7% loss from this quarter to the next. They are down 7% from a year ago and expect that 2017 will finish about 7% down from 2016.

        • 0 avatar
          Lou_BC

          I was told by a vehicle appraiser that “they” tend use 20% depreciation in the first year, 15% the second and then 10% for each year there after.

          They also use other factors such as excess mileage and damage.

          7% per quarter is not good.

  • avatar
    OzCop

    So…tell that to dealers who have 2013 to 2016 Ford Focus ST’s among their used car stock. A unit that listed for 23K 2 to 4 years ago still has an asking price from 16K to 20K, many with much higher than average miles. Silly to ask 20 plus for a 15 or 16 model that can be purchased for at or near the same 20K plus price as used. A base model new is 25650, and I have seen them for as low as 18300 a couple of weeks ago. Was going to buy but the two in question were gone before I got there. The pisser is they had others of the same base price, but would not sell them for the discounted price…go figure…

  • avatar
    PrincipalDan

    We’ll see what happens.

    My next vehicle purchase is probably in 2019 and I had been thinking new (for the first time in my life) simply because the price gap between the new and gently used vehicles on my short list was so small.

  • avatar
    mikey

    We all go through stages in our life. When we first started out, we owned beaters. Keep em running as long as we could. Then scrap them, and buy a slightly better well used car. The great day came when we could buy new.

    With our new cars we became keepers. Not out of choice. Mortgages, educations,braces, etc. A lot of economic factors, kept us out of the showrooms. Our vehicles ran 8-10 years.

    Then the empty nest stage . We juggled 2 or 3 cars around, trading every 2-4 years .Those years were certainly a blast. However I shudder to think of the depreciation costs we ate.

    With my wife in Long Term Care, and me living alone , I have no need, or for that matter desire , to step into a showroom. I’m returning to the “keeper stage”..I’m simply tired of playing the buy, trade, sell game.

    Hopefully.. I will out live my 2015 Eco Boost Mustang. Maybe I can get a couple of bucks for it, or send it to the crusher when it becomes economically unfeasible to keep on the road.

    At that point , if I still have a drivers licence I will lease.

    • 0 avatar
      jimmyy

      Outliving a Toyota or Honda could be a trick.

      But, outliving an ecoboost Ford product should be doable.

      • 0 avatar
        mikey

        @jimmy…I might agree with you about the Honda, at least the older ones ?..The older Hondas do run well, and long . Up here in Canuckistan The Hondas have two big issues. Number one if you don’t do a very careful rustproofing job annually they rust. Every vehicle needs rust proofing here, but the design of the Honda sub frame makes it very hard to get a good coverage of rust proofing product. I know guys that can do it. They’ll tell you its a PITA but it can be done. A lot of shops don’t bother to take the time. The body steel holds up really well. If the sub frame rots its food for the crusher. The good news is that before the frame rotted Honda gets crushed, the “you pull “it yards make a fortune on the body panels, and all the other good parts.

        Now that bring us to the other problem, Honda parts are redly available but expensive, as are repairs.

        I like the looks of Hondas, the newer stuff ?? Not so much. However I could live with an Accord coupe . That is if I could find one. I think I read on TTAC the Coupe is on the chopping block. Before I bought the Mustang I briefly entertained the thought of buying one. The Accord met my criteria , 2 doors, leather, and made in North America {strange how 8 years away from the UAW/CAW can change your way of thinking.
        Eh )

        Toyota ?? I just don’t see the build quality, and i know what to look for. That,and the Toyota line up, just doesn’t do anything for me from an aesthetics point of view.

        Yeah…I fully expect, and am prepared for some nasty repair bills down the road. Whats a few thousands in repairs, when you relate it to depreciation ? (the depreciation factor, is one of the reasons I checked out the Accord) .. Remember in Canada we pay a lot more for cars, then throw in 13 percent sales tax. The local Honda dealer didn’t have any coupes in stock. The ones that did, weren’t moving on price.

        I love the looks of my Mustang, its comfortable (for two people) The Mustang is very maneuverable around town. The car is fun to drive, not near the visibility issues of the Camaro. I just plain like it. At my position in life I will drive what I want to drive….I took a little flack from my former colleagues at GM. I would have taken a lot more had I had bought the Accord. But personally at this point in life I couldn’t give a rats a$$ what anybody thinks. ..

        I love my Mustang and its my keeper.

        BTW Jimmyy…Have you figured out how many cylinders you own yet ?

        • 0 avatar
          ajla

          I’m the opposite. I have relative confidence in a Toyota / Lexus being able to go the distance.

          But, Modern Honda is just Ford with better PR.

          • 0 avatar
            ToddAtlasF1

            Honda was great up through 2014, at least the 4 cylinder models. CVTs, direct injection, and, worst of all, turbos have seen them fall from grace since then. Calling them Ford with better PR is hyperbole though.

          • 0 avatar
            ajla

            “Calling them Ford with better PR is hyperbole though.”

            Maybe, but it is closer than H-fans would want to admit. Honda & Acura quality is mid-pack these days. No one puts them among the best any longer. They survive on past reputation and riding Toyota’s coat tails.

            consumerreports.org/car-reliability/car-brands-reliability-how-they-stack-

            jdpower.com/ratings/study/Vehicle-Dependability-Study-%28VDS%29-by-Make/1881ENG

          • 0 avatar
            JohnTaurus

            Riding Toyota’s coat tails? Ha!

            Having driven modern (late model) Toyota and Honda products, I can’t see that. Not at all.

            Toyota’s look, feel and are cheap. Their build quality is not that good anymore, and most of their current lineup is woefully outdated (especially under the skin).

        • 0 avatar
          Lou_BC

          mikey – agreed. Our climate is extremely hard on vehicles.

        • 0 avatar
          gtemnykh

          “Toyota ?? I just don’t see the build quality, and i know what to look for.”

          You spent time putting W-bodies together, correct? And you’re questioning Toyota’s quality? Takes all kinds I guess!

          Toyota definitely went off the rails with cheap interiors in the ’07-’11 camry, 09-13 Corolla, Venza, 07-13′ Tundra, basically anything from that time period. ’15+ Camrys finally emerged from the bottom of the barrel, hopefully they stay on an upward trajectory in terms of interiors. We’ll probably never see a mid-90s Toyota tier interior from Toyota or anyone else in a mainstream sedan ever again unfortunately.

          Mechanically you’ll be hard pressed to find a more straightforward and durable mainstream FWD platform than Toyota’s K, which itself borrows heavily IMO from the prior XV10/XV20 in terms of suspension layout and the use of beefy longerons under the unibody. A classic case of “if it ain’t broke don’t fix it.” I’d also put Toyota’s Aisin automatic transmissions as the most consistently reliable and long lived in the business.

  • avatar
    APaGttH

    Amazing, this a problem for the Detroit 2-1/2 but no other auto makers.

    And I was just reading on TTAC a few days ago about how the prices of BMWs are in collapse. Subsidized 3-series leases coming back to haunt them?

    Meanwhile, I can lease a Toyota Camry SE for $179 a month according to the TV — no subsidized lease going to come back to haunt them there…nor the 60K+ Camrys that have gone to rental fleets each year for most of this decade.

    • 0 avatar
      highdesertcat

      They’ll sell when they come off-lease or off-rental duty.

      • 0 avatar
        Scoutdude

        No one said they won’t sell off-lease our out of the daily rental pool just that in the case of the lease returns Toyota is going to take it in the shorts as will many mfgs. But Toyota with their need to buy the #1 selling car in the US title, regardless of cost, will get hit hard.

        • 0 avatar
          APaGttH

          Exactly this.

          Supply and demand, when you artificially flood a market with supply, basic economics 101 will take over.

          If there are a ton of off rental-duty off cheap lease Camrys sitting on lots everywhere, prices will depress. The Camry has the lowest ATP in class (chafing out the defunct 200) as it is. Not a great place to be when part of your reputation is long term resale value.

          • 0 avatar
            Scoutdude

            But Bark said that econ 101 wouldn’t apply to the off-lease used car prices and that they would only go up, never go down.

          • 0 avatar
            Whittaker

            Cars coming off lease don’t upset the supply/demand balance. The person turning in his leased vehicle still needs a vehicle.
            Supply & demand both rise in concert.

          • 0 avatar
            DenverMike

            Why would they turn in their lease and go buy a used car (of the same vintage)? No, it’s like a “machine” digesting new cars and crapping out a glut of used ones, with not enough (newer) used car buyers.

            But I get the feeling cars just coming off a lease are competing directly with clean 2005 era cars, with plenty of miles left in them, but for a fraction of the price.

    • 0 avatar
      ajla

      “Amazing, this a problem for the Detroit 2-1/2 but no other auto makers.”

      In Sam’s defense he doesn’t claim that it is *ONLY* the Detroit manufacturers feeling the heat from this. He’s focusing on the linked Reuters article which was specifically about the effect the lower used values are having on FCA, GM, and Ford (the Reuters article also doesn’t say this is domestic-only phenomenon FWIW).

      Recently, TTAC wrote the BMW pricing article you referenced, wrote about Toyota’s falling profits, the increasing incentives at Subaru, attempts to increase profitability on the Impala, and the RAV4’s price war with the Rogue. I think the site is covering the current market fairly.

  • avatar
    narcoossee

    I think it’s affecting more then The Detroit 2 1/2.

    Here’s a 2016 BMW 7 Series 740i RWD for $56K http://www.offleaseonly.com/used-car/bmw-7-series-740i-rwd-wba7e2c59gg546927.htm

    How much was it new? $80K? $90K?

    That store has tons of BMWs and other aspirational brands on their lots, and they seem to be at a pretty significant discount from new. The only reason that would happen would be due to lack of demand for them…

  • avatar
    brettc

    If this comes to fruition, I’ll have the advantage when I turn in my TDI in late 2018 and look for a gently-used car.

    Thanks to everyone else for buying new cars and taking that depreciation hit in the last several years. :)

    • 0 avatar
      APaGttH

      My last new car purchase was 2009 and I haven’t looked back. Gently used or undesirable orphans with generally acceptable reliability offer a much better value.

      Let someone else take the hit.

      Bought a 2011 Avalanche LTZ 4WD with every option but sunroof last year for more than 50% depreciation. Looks new, rides, new, interior looks new – and I didn’t take a $28K kick in the balls for buying new.

      • 0 avatar
        Lou_BC

        I was looking at used trucks in 2009 and 2010 but 12k off plus 1k Costco discount and a 3k trade in value on my Safari, it put the truck I bought relatively close to used truck prices.
        A 3 year old truck is off warranty and will be needing tires and brakes are in the near future. In my case, it was a much better deal than a used truck.

        7 years later I’ve had one warranty repair, my 2nd set of tires are almost done. I’ve had the front brakes done and the rear brakes are about ready to get changed. Oh and I need front axle seals.

  • avatar
    tomLU86

    I bought a new Malibu in 2011. Best car I ever owned–102K, I paid for ONE repair at 97K, and dealer replaced an engine sensor (emissions warranty) at 88k.

    I don’t need a new car. I was happy with my Malibu. But kinda bored.

    I drove a new Buick Regal in December. Really liked! But a lot of money.

    In January, I went to Buick dealer, test drove a 2014 Regal. It drove just as well as the new one. I bought it, great car, and a lot less than new, and put my Malibu up for sale.

    AND the first person to actually come look at my Malibu wound up buying.

    Good business for me

  • avatar
    sportyaccordy

    Who on Google Earth didn’t see this coming?

    One thing I would really love to know is whether they factored in all their incentives. You put $5-8K on a 25-40K car…. it’s probably going to take a similar dip on resale value. Especially at the scale with which manufacturers have been applying them. It’s been a real race to the bottom.

  • avatar
    dividebytube

    I was looking at used cars yesterday. Prices seem a bit lower than the last time I searched. Also low mileage Chrysler 200s are going for silly low prices – even the ones with AWD and the V6. Lexus seems to have the lowest depreciation, with high mileage examples still going for more than I want to pay. I suppose some people just want to be “ballers” even if they’re cruising around in a car with 250k miles.

  • avatar
    yankinwaoz

    I suspect that the used car market will become very lopsided so that the market averages will deviate widely from individual purchases.

    Here in California we have a large gas tax hike coming Nov 01 (15c/gal petrol, 20c/gal diesel). This is certainly forcing me to limit my searches to more efficient vehicles and avoid the less efficient. I don’t think that I’m the only one.

    This operational cost increase, scaled to the size of California’s car market, will put downward pressure on the prices of cars that get less than 30MPG. And conversely, I get the sense that the prices of hybrids and such are remaining stable.

    My personal experience reflects this. I’m in the market to replace my TDi Passat. I’m loath to give up my 38+MPG, especially in light of the increasing fuel prices. But I find the prices of used hybrids that I am looking at to be unreasonably high. On the other hand, I can get a “gas guzzler” petrol model for a surprisingly low price. I’m seeing like a $10k difference in many cases.

    For those of you outside of Cal, you might want to wait for 2018, then get yourself a nice used California petrol car for cheap. No rust. Cal emissions. Off lease or rental market.


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