I had hoped that used car prices would have corrected by this time Memorial Day 2012.
The fact is, used car prices are extremely high in some sectors, mostly four to eight year old – 2008-2004 cars with under 100k miles on them, expecially imports like Toyota Camry, Honda Accord, Nissan Maxima, Altima and Lexus.
Why are used car prices so HIGH?
IMHO. The continued limitations on production of new cars, a somewhat bumpy economic recovery and mixed messages about the future of 2012 depending on which politician you listen to and Wall Street’s response to such. Parts, core materials and the dollar value in Europe and Japan have caused the cost of these items to rise, making new car manufacturers reluctant to make excess inventory. Right now the automakers are responding to dealerships confidence when ordering and the facilities ability to crank out so many new cars per day without increasing labor costs. The suppliers of parts must also fall in line with their ability to supply the airbags, switches, glass and rubber going into the cars. When there is a lack of new car inventory on the dealer lots, people don’t trade their old cars, they wait.
A lack of good used car trades… lack of turn-over.
Another issue is the lack of lease returns. In the past and up until 2008 there were lots of leased vehicle in the system, pre-determined trade-ins. We all remember 2008, it was the beginning of the Great Recession, as it is now called, not so GREAT, but I digress. The reality is, leasing came to a hault, almost. The lack of leased cars in 2008, 2009 and 2010, has effected the number of returning off-lease vehicles to the “used car” market. In addition, those consumers who have leased vehicles are finding the residual value, aka: buyout, is less than the actual retail value of their car on the lot. Hence, the leasee is BUYING his/her vehicle and holding onto it for another few years while trying to decide what the future holds. This is another reason ALLY and other banks are trying to charge huge “buyout fees” on their new lease contracts, to capture some of the profit on the low residual. But again, that is a story for another blog post.
The only arena where I see some possible “deals” in the used car market is luxury sedans and coupes; BMW, Jaguar, Mercedes Benz, in the 3 series or C-class. 2009 – 2010 Jaguar XF, 2008-2011 Lexus ES350, IS350 and 2008-2010 Infiniti G37. Audi A4 and A6 are still high priced, as are Acura, Bentley. Porsche is hot and should only be purchased from a CERTIFYING Porsche dealership.
Earlier this year I had predicted the high-prices of used cars would pop by Spring, but I was wrong.
Supply and demand, CONSUMERS PAYING THE PRICE, and banks lending, has kept the house from crashing, but as soon as the car makers get their production flowing, hopefully by 4th quarter 2012, used car prices will slide back to a more stable and sustainable level.
However, be careful! If you don’t put much cash down, take a 72 mos. loan, or add negative equity to the new loan, make sure you have GAP protection on your loan. Gap protection will cover the “gap” between the balance on your car loan and the insurance company valuation, in the event your car is stolen or totalled!
This Memorial Day, be prepared for the nice cars to have a premium price tag when sold from a reputable dealership lot offering financing and warranty, expecially on late model 2004-2010 used cars. The nicest ones rarely make it to the front line, so let the dealers know exactly what you are looking for and have the ability to move quick if they get one. Be careful of “unbranded” or “pot lots”, where the cheaper the price, the more likely the car has a problem, a salvage title or both.
If you have any questions about used car or new car shopping, deals and holiday special offers feel free to ask MyCarlady.