Used Car Buyers Get Welcome Relief as Prices Tumble

After watch­ing prices surge to record lev­els in the wake of the Great Reces­sion, U.S. used car buy­ers are final­ly catch­ing a break, with costs tum­bling sharply on most mod­els and like­ly to con­tin­ue to slide through 2016, accord­ing to those who track pric­ing trends.

There are a few excep­tions, such as pick­up trucks, which have been in increas­ing­ly high demand as con­trac­tors and fleets rebound along with the econ­o­my. But there are great deals to be had on “near­ly new” lux­u­ry cars and a num­ber of oth­er mod­els, accord­ing to such experts as Tom Webb, the chief econ­o­mist for Man­heim, which runs some of the nation’s largest used vehi­cle whole­sale auc­tions.

“Prices will con­tin­ue to decline because of increased sup­ply,” Webb told TheDetroitBureau.com, “most­ly from off-lease vehi­cles.” The down­ward trend, he added, should con­tin­ue for at least the next 18 months.

That’s par­tic­u­lar­ly good news for those who want a like-new car, truck or crossover in good con­di­tion, with rel­a­tive­ly low mileage, and often car­ry­ing the final por­tion of a fac­to­ry war­ran­ty, Webb and oth­er experts note.

Used car prices took what the Man­heim econ­o­mist called an “unprece­dent­ed” surge in 2008, hit­ting an all-time peak three years lat­er and gen­er­al­ly hold­ing at above-trend num­bers until now. The rea­son was Eco­nom­ics 101: a lack of sup­ply. The used vehi­cle mar­ket depends on a steady sup­ply of replace­ment vehi­cles as the old­est prod­ucts are scrapped. But when the new car mar­ket fell to its low­est lev­el in over a half-cen­tu­ry as the econ­o­my col­lapsed, that meant few­er trade-ins and off-lease vehi­cles would be avail­able, dri­ving up prices.

The new car mar­ket has been rebound­ing even faster than antic­i­pat­ed, hit­ting about 15.5 mil­lion in 2013, while it is expect­ed to top 16 mil­lion this year and keep grow­ing. So, there is a grow­ing sup­ply of used vehi­cles avail­able, dri­ving down prices.

Accord­ing to Man­heim data, the mar­ket start­ed turn­ing down­ward in May. Webb said a typ­i­cal mid­size sedan that might have cost $15,000 in June was going for about 2% less a month lat­er, or around $14,700.

The Black Book, which tracks vehi­cle val­ues for deal­ers, esti­mates the decline has been even steep­er. Focus­ing on those near­ly new, off-lease vehi­cles, it esti­mates that val­ues at the deal­er lev­el slumped from an aver­age $22,863 at the begin­ning of August 2013 to $20,463 by July of this year, an 11.8% decline.

“We antic­i­pate this trend of accel­er­at­ing depre­ci­a­tion will con­tin­ue through the rest of the year,” said Ricky Beg­gs, Edi­to­r­i­al Direc­tor at Black Book, “with small­er cars and lux­u­ry seg­ments see­ing high­er lev­els of depre­ci­a­tion.”

Some of the biggest declines have come in the lux­u­ry seg­ment, prices off 15.6% from a year ago, accord­ing to Black Book data. Manheim’s Webb, mean­while says used car shop­pers will like­ly find some great bar­gains in the com­pact and mid­size pas­sen­ger car seg­ments.

On the oth­er hand, Webb cau­tions that prices have actu­al­ly risen on pick­up trucks because of strong demand. And you may pay more for used com­pact and mid­size crossovers – which have shown some of the fastest growth in the new car mar­ket.

While the recent decline in used car prices may be good news for bar­gain hunters, there’s a flip side to the sto­ry. “Most used car buy­ers are also trad­ing in a used car,” says Webb, adding that this like­ly means they will also get less mon­ey for the vehi­cle they’re get­ting rid of.

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