Word to Your Wallet: Used Car Prices Are Taking a Dive
No one can deny that, as the nation’s economy is recovering from the fiscal recession of the late 2000s, the automotive industry is also on the upswing. While that undeniably means new technological innovations and hot new models coming off the assembly line, that also means good news for used car buyers.
With all the demand and attention on the newest vehicles arriving at dealership lots, the supply of used cars is quickly becoming more affordable. Industry experts are giving advice to consumers to dive into the used car market now as evidence is everywhere that used car prices are heading down and will continue to drop.
We’re Not Crying Wolf: There’s Proof That Used Car Prices Are Dropping
Sounds like another trick by car dealerships to lure you into checking out their inventory and lassoing you into a purchase, you’re thinking. Actually, this claim comes from a recent article by Time, which took a look at multiple data sources before drawing that conclusion. Care to hear their proof?
First, let’s look at The Wall Street Journal’s report from September citing that “used vehicle prices extended a four-month decline in August amid rising dealer inventory of preowned vehicles and softening demand for used cars.” Sounds just like what I said earlier, doesn’t it? The Wall Street Journal obtained their information from Georgia-based Manheim Inc., a trusted source for industry data.
Still skeptical? What about the USA Today report also from September that Time cited? “At retail, the average used car sold at a franchised auto dealership went for $10,883 last month, down 1.6% from a year ago and 2.4% from July, says CNW Research.”
Perhaps the third one’s a charm. Edmunds.com actually predicted this would happen, when it said that, “A glut of vehicles hitting used car lots will drive down prices as much as two percent this year.” So, it’s not like news of used car prices dropping is a surprise.
By now, you have to be convinced that it is happening, so you probably want to know why.
Why Used Car Prices Continue to Be Heading Downhill
In case your wallet never told you, used car prices were at a 16-year high in 2011, at the time those affected by the recession started looking for vehicles to buy. They were looking for cheap options they could afford that weren’t totaled by Cash for Clunkers (which took out millions of used vehicles), so the demand was high and supply was low.
So, what differences do we see in 2014?
- Consumers have regained their financial footing and traded in used cars for hot new models, yielding a greater selection.
- More customers were leasing in the beginning of the 2010s due to the recession, and many of those models are returning to dealership lots to be sold used.
- Better certified pre-owned programs make buying used cars a better deal for consumers and dealerships.
- Lower value at trade-in. With inventory surging in dealerships, less is paid on trade-ins, which means they’re sold for less to used car buyers.
I’m sure that’s encouraging to hear for many, but some are probably leery that such a trend will quickly boomerang and return to the bottom lines we’re used to seeing. Well, if you trust AutoTrader.com’s predictions, used car prices should follow the same downward trend for the foreseeable future. This is due to the fact that inventory of certified pre-owned vehicles has risen 6% since March, and many of these will be priced at around 5% less than what dealerships were asking for earlier in 2014.
Just beware of the caveats of low used car prices: if that aspect of business profitability is low, you can expect other aspects to rise and find balance. So, for now, start looking used!
Tim Shults likes to play golf and spend time with his four daughters.