A Look At the Used Car Market
In 2008, when the economy took a big fall the auto industry was one of the hardest industries hit. With the crash came the bankruptcy of GM and Chrysler; the Cash for Clunkers Program; the increased sale of used cars over new; and with these increased sales of used cars over new cars a decline in the supply of used cars. Fewer people were trading in their used cars for new ones and instead were holding on to their current car for longer. The limited supply of used cars is something that will continue to be felt for many years even after the economy returns back to the “new normal.”
As the auto industry felt the effects of the failing economy they cut back on production producing fewer cars in 2008 and 2009 then before. They especially cut back on truck sales and production in 2008 when gas prices rose to an all time high and consumers stopped purchasing gas guzzlers and opted for something a little smaller and more fuel efficient. Now, with gas prices back down consumers are looking for used trucks and SUVs and are finding a very limited supply. Prices for used SUVs and crossovers have increased over 30 percent in the last year due to the short supply.
Some car dealers have seen the sales of used cars increase about 25 percent since last year. Basic economics shows that when the demand increases and the supply decreases the price has to increase. Used car prices have increased 10 percent nationwide from 2009. It is now harder for dealers to find gently used cars for a cheaper price. When dealers go to auction to buy used cars for their lot they now have to pay more than what they did in 2008. Back in 2007 a 2004 Buick Century with 70,000 would’ve gone for ,500 and now in 2010 it is going for ,500.
Also keep in mind that used cars today are in a lot better shape than the used cars from 20 years ago. Therefore the value of these cars has increased. Even though used cars may cost more today the consumer can actually find a used car in great shape; for most buyers who cannot afford to purchase a new car with all the little extras they can now find and afford a used car that does have all of those added luxury features.
The limited supply issue is going to get worse before it gets better; in 2008 and 2009 very few new cars were sold and the predicted number for 2010 new cars is only 11.5 million units. This means that in the coming years finding used 2008 and 2009 models it going to be difficult. Even rental car companies, which used to be a great source for gently used cars, are holding onto their fleet longer too. These companies used to turn over their vehicles every six months, but with the current economy even they are holding onto their vehicles longer. The snowball effect is going to get worse as first 24-month cars, then 36-month cars and then 40-month cars don’t come back as trade-ins; because they were never built or bought in the first place. The trend of trading in a car after two or three years after purchase for the latest models has died down; as such the price of used cars is going to go up because no is trading in their cars.
Dealers are doing what they need to do to find and keep used cars on the lot. They are sending fewer trade-in vehicles to auction and instead are keeping them for themselves. They are also willing to pay more for a used car at auction to bring to their lots. It used to be that the ratio of used cars to new cars on the lot was 2-to-1 and now it is 3-to-1. Some car dealers are taking advantage of the used car market sales and opening car lots specifically for used car sales. Hopefully the predicted decline in the supply of newer used cars won’t hurt them too badly. The auto industry has seen enough damage in the past 2 years and maybe the used car market is what they need to get back on their feet. Although used cars are built better today they do tend to need more maintenance then new ones which could mean an increase in sales at the service center. And the service center is the bloodline of the car dealer; it is how they stay alive in times of low new car sales.
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