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The current shortage of used cars, along with record prices for second-hand vehicles, is likely to come to an end, according to ALG.
According to ALG, June 2014 marked the lowest level of used vehicle supply, with both Cash for Clunkers (which took an estimated 700,000 vehicles off the road), as well as low new vehicle sales from 2008-2012 making used cars a scarce commodity.
But with rising sales over the past two years, a new pool of trade-ins, as well as vehicles coming off short 24 and 36 month leases should mean a broader supply of used cars. Currently, the lack of new car sales in 2009 is affecting used car inventory levels today, but ALG’s forecasts predict an upswing occurring in 2016.
36 Comments on “Used Car Prices Set For A Decline: ALG...”
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Most people finance used cars; when used car payments are almost the same as new car payments there is little incentive to buy used. The market is responding accordingly.
It’s partly just supply and demand. Increases and decreases in the supply of off-lease cars will track whatever happened in the new-car market 3 years before. New vehicle sales have been rising, and leasing has been rising as a proportion of them; naturally, the supply of off-lease vehicles will be going up, and the prices likely going down.
I’ll believe it when I see it.
“record prices for second-hand vehicles, is likely to come to an end,”
Thank god. Prices for used cars need to come down. There are plenty of people who need used cars. Especially people with decent jobs that need moderate priced, reliable transportation. And maybe not a stellar credit rating.
It would also be good for used car dealers. Record prices for used cars does them no favors. They pay more for inventory and have to pass the costs on to buyers who are already under financial pressure. Just like the frequently discussed pent up demand for new cars, the same is equally likely for used cars.
#1 People buying low-end, regular cars like Camry, Accord, Sonata, etc…probably tend to keep them longer.
#2 People Leasing middle and high end cars take them back after 2 or 3 years, but…
#3 People with strong credit and cash prefer to lease or finance a new car rather than buy used or certified pre-owned and
#4 The banks would rather give loans for new cars – rather than used because if the borrower defaults, they can take it back and sell it to recoup some losses.
#5 the high interest rates incurred by people buying cars on less-that-prime credit ensures they’ll end up “underwater” on the loan, meaning they can’t so easily trade it in towards a new one.
Whenever a friend or family member asks me to go shopping with them, I’m shocked to see how high residual prices are for used cars. I took a cousin shopping for a Sonata – hoping to score a loaded model with low mileage or a brand new car with nav/moonroof. The prices on all the used cars were still high and there was very little wiggle room. He ended up buying a new Chevy Malibu 2014 with no options.
If residual values are so high, is this a good time to lease?
Then when the lease expires, renegotiate the buyout price?
Leasing is typically done by the bank behind a specific car dealer. On some cars leasing makes sense (more expensive, far less than 10% rate, wanna avoid the hit on depreciation).
Whether or not it’s a good time to lease depends solely on you.
Want an E, CLS or S class? If you’ve got the cash, probably better to do a 3 year lease.
Renegotiating the buyout price can be advantageous if you truly love the car enough to keep it. Or if a car has been discontinued and you want to keep yours.
when someone buys used a new car isnt sold. the above is true. most people arent savy car buyers though and buying used is what they do to get the payment they can afford. i buy new because i work hard and dont need to work on my truck after i get done working it. so the influx of used will slow down the new sales and it will do the same thing the article says happened in previous years. so really is this a good thing??? NOPE! all it will do is raise the prices of new to keep the prices of used high. used cars are much more profitable than new. new is what draws the crowd used is what sells. a lot of money is being thrown around a lot of insurance money is being spent from all the tornadoes, hail storms, and floods that are now more common than ever on a yearly basis. Really though once this is over its back to a recession overnight. my businesses will go dead, and i will need to support them as i have been on and off since 08′. We like to talk about new cars and new technology, when a car is chuck full of outdated, broken, abused, misused electronics and its only five years old would you buy it? Most likely not. why buy a used vehicle thats not that much less than new, if it will become obsolete, or too expensive to fix. I mean really your buying used, so you are budgeting money right from the start planning on saving buying used. so being smart with your money would tell you the outdated electronics in the vehicle arent worth getting into. plus fuel milleage goes up almost every year on these vehicles. if your smart with your money you would want the better more fuel efficient vehicle not the older one that is worthless from the rapid pace the operating systems are changed and they new toys that arent compatible that you got for Christmas lol and power,towing. after reading more news about GM I wouldnt touch one of those with a ten foot pole. companies can go under, the money that our country posses is already spent. there isnt any to bail anyone out with. were spending money on illegals and the 4 billion (3.7) dollar bill was shut down, re assessed 3 time to 620 mil. if we had the money they wouldnt have hesitated, THEY DONT AND WERE ABOUT TO BE SCREWED!
You can’t have an open border policy AND a welfare state.
It only attracts poorly skilled labor who wish to supplement their mediocre income with welfare.
WTF????????
This is to
balreadysaid
when you bring up buying used cars or trucks you are talking about the economy in general to me at least. influx of cars that will allow people to buy them because of price. that to me is why i brought up what i said. they all go together to me. if i came off as a knowitall convoluted nut case i am sorry. stress of business makes me want to vent to the world when i get a chance and it seems like i saw this article as an opportunity to do that. again i dont want to be viewed in a negative manner for things that were said from the heart.
No problem and thanks for the reply just did not know where you were coming from, BTW most Canadians I know ( I work for a company outside TOR) think NY state is cheap compare to where they are.
@balreadysaid
Every new car is a used car as soon as it rolls off the dealership parking lot. The only question is how much of a discount from new do you get for second dibs. If I can find exactly what I want for the right price, I will happily buy used. If not, I will buy new. Modern cars are ridiculously reliable, and they are reliable for a very long time.
funny thing is my state border canada. i dont see or here anything about them trying to get in illegally lol they try to get the heck out of here after they see how high taxes are in nys.
to me this influx of used might actually be good for a little while but i am severly skeptical of any good coming of anything to do with cars and prices being lower especially when used is in demand and the industry found a new metal
that they can charge more for.
also why would your government not want you spend more money tax is basedx on percentage, the more you spend the more they get, cash is king especially to the govt
A: About time, used car prices are goofy high.
B: Cash for Clunkers removed cars that, by and large, would be pushing 20, if not older and weren’t all that wonderful six years ago. I doubt that has much if any affect on prices for anything but beaters.
C: What I see in my friends and coworkers is a tendency to buy new and keep cars for quite a while. I traded in an 8 year old van and got the third degree from one of them as to why we got a new car so soon.
I hope use cars come down but I am not gonna hold my breath, since new cars tend to be sold with more high end options on them , they will command higher prices, When I was looking for a car in 2011 use car prices were crazy high and I bought new, spent more than I wanted but got new. I will kill the car with the way I drive ( 30,000 plus a year) so I guess my choice will be sell it when the loan is up next year with about 120 K on it and hope use cars return to their normal levels or run it into the ground and see how long it lasts, my guess is I will run it into the ground but who knows. I will be very happy to be done with the payment as collage bills are here for the next decade or so.
Well, I’m going to be in the market within the next year or so…fingers crossed.
I used to live by the motto, only idiots buy new. Well, it’s at the point now where I can find new cars for $2000 – $4000 LESS than their used counterparts. One quick example near me:
Ford Focus ST.
New: 2014 Black Non-Recaro (assumed) – $19,946
http://www.cars.com/vehicledetail/detail/612792262/overview/
Used: 2013 Yellow Non-Recaro 864 miles – $23,123
http://www.cars.com/vehicledetail/detail/607076018/overview/
There have been even better examples recently with miles in the teens and new ones listed for $18,500.
There’s just no reason to buy used right now, it doesn’t make a lot of sense why late model used prices have sustained this level.
And are people leasing? Why would you lease when interest rates are so low and used car values are so high? You could buy a new car, drive it for a year and then sell it for more than you paid for it. It’s just really crazy right now.
“Why would you lease when interest rates are so low and used car values are so high?”
Because much of the country is between the line of doing well and extreme poverty where they can hit the welfare jackpot.
“the welfare jackpot”? Seriously? I’m hoping that was sarcasm, because otherwise you’re clueless.
I have a clue, do you Che?
“We found that, in 2013, the value of those benefits varied widely across states, from a low of $16,984 in Mississippi to an astonishing high of $49,175 in Hawaii.
In nine states — Hawaii, Massachusetts, Connecticut, New Jersey, Rhode Island, New York, Vermont, New Hampshire, and Maryland — as well as Washington, D.C., annual benefits were worth more than $35,000 a year. *The median value of the welfare package across the 50 states is $28,500*.
But that doesn’t tell the whole story. Welfare benefits are not taxed, while wages are, so we calculated how much money a welfare recipient receiving these six benefits would have to earn in pretax income if she took a job and left the welfare rolls. We computed the federal income tax, the state income tax, and the FICA payroll taxes one would have to pay on wage income; we also took into account both federal and state versions of the Earned Income Tax Credit (EITC) as well as child tax credits where available (these helped increase the relative value of work but did not fully offset the taxes due).
We found that, just to break even, a person on welfare would often have to take a job that paid considerably more than the value of the forgone welfare benefits. In Hawaii, for example, a person leaving welfare for work would have to earn more than $60,590 a year to be better off. In fact, welfare currently pays more than a minimum-wage job in 34 states and the District of Columbia. In Hawaii, Massachusetts, Connecticut, New York, New Jersey, Rhode Island, Vermont, and Washington, D.C., welfare pays more than a $20-an-hour job, and in five additional states it yields more than a $15-per-hour job.”
http://www.cato.org/publications/commentary/welfare-better-deal-work
“This is graphically, and very painfully confirmed, in the below chart from Gary Alexander, Secretary of Public Welfare, Commonwealth of Pennsylvania (a state best known for its broke capital Harrisburg). As quantitied, and explained by Alexander, “the single mom is better off earnings gross income of $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income and benefits of $57,045.”
http://www.zerohedge.com/news/2012-11-27/when-work-punished-tragedy-americas-welfare-state
Did they really ignore the fact that it costs more to live on Hawai’i than in Mississippi?
Details, details…
They claim as cited: “The median value of the welfare package across the 50 states is $28,500.” The variations between states and individual cost of living is not compared. However toward the end: “Indeed, survey after survey suggests that they would prefer to be working. By not working, welfare recipients are simply responding rationally to the incentive systems our public-policy makers have established for them.”. This system is disincentive to work.
Between the two, I am far more interested in Secy Alexander’s findings, since he is a gov’t officer vs a think tank and I live in the glorious Keystone State.
While those may be the benefits you get if you have a kid or three, good luck to you if you are single and need some public assistance. And even then, raising a kid or three on the equivalent of $28K is not what I would call a jackpot situation. It’s not like they GIVE you that cash to spend as you see fit. It’s some combination of food stamps, housing assistance, child care, and on the higher end, probably a good chunk of it is a public health care subsidy. While it would be nice to have food, shelter, and medical care, with no cash it would be a pretty meager existence.
I do think that if you are getting public assistance you should be working for it, even if that work is sweeping gutters with a broom 8hrs a day. I don’t even care if it is pointless work – digging a hole and filling it back in again over and over would be fine by me.
Those figures assume one household receives all the benefits from every program. That’s almost never the case.
Welfare income doesn’t exist in a vacuum. There are a lot of hours in the week when you don’t have an 8-4 to get to. If you can’t come up with 20 bucks a day under the table you aren’t trying very hard.
That covers a comfortable amount of pot, beer, and basketball shoes so long as you and I keep paying all of their real bills.
Here’s the short version:
What we think of welfare benefits actually have an average cash value of about $15,000 per year per family nationwide. Cato included lots of fudging to reach their numbers. Shocking, I know.
The real numbers for a typical family on ‘welfare’ are $4704 per year in TANF cash grants, $4536 per year in food stamps, and between $2500 and $5000 a year in medicaid depending on how you figure the numbers. WIC works out to about $1500 a year but is only available for families with very small children. Most families who are public assistance never see a penny of Section 8 housing or LIHEAP energy assistance.
Those numbers are all for a family of three; the actual ‘average’ size of a family on TANF welfare assistance is 2.8, though almost half of those families are only receiving benefits for the kids, which would make the actual average size somewhat smaller.
TANF and food stamp (SNAP) numbers from here:
http://www.acf.hhs.gov/programs/ofa/resource/character/fy2010/fy2010-chap10-ys-final
Medicaid spending from here:
http://kff.org/medicaid/state-indicator/medicaid-payments-per-enrollee/
WIC spending from here:
http://www.fns.usda.gov/pd/wic-program
The longer version:
1) Ignore anything Cato says. Not a reliable source, and their history of intellectual dishonesty means I’m not going to waste time picking through the methodolgy of any particular study from them. There are plenty of reputable conservative leaning think tanks and academics out there. Cato’s not one of them.
The one insight IMHO Cato does have is in their second graph when they note that the feds run 126 separate anti-poverty programs. Even assuming they fudged the numbers a bit, WTF. Department of redundancy department.
As for zerohedge, it’s often interesting, and occasionally even right, but not exactly reliable for public policy.
2) Which six benefits are we talking about? Cato included Section 8 housing assistance. That could have a large cash value, especially in someplace like Hawaii where rents are way high.
The thing is, very few poor families — even those on ‘welfare’ — actually receive housing assistance. The pool of money is really small compared to the need. Which means the waiting list for Section 8 grants is usually at least five years long, and often much longer. Where I live they don’t even open up the waiting list except once every couple of years.
There’s a similar story for energy assistance. There’s no years long waiting list for that program (main one is called LIHEAP — low income home energy assistance program). I don’t remember if it’s calendar- or fiscal-year based, but it’s an annual appropriation and it’s all gone in three or four months in most places. Again, very few of the poor actually see any of those benefits.
3) If you’re going to include Medicaid benefits in your calculations of welfare vs work, remember that including health insurance for a family of three would add about $10,000+ a year to the salary of the job in question.
4) I would suggest that anyone who believes what Cato says about living on welfare benefits has never tried to survive on them. I was raised by your classic conservative villian — the drug-abusing welfare mother. I lived on welfare benefits for years growing up. I work for a living, and for a while made less than the numbers Cato throws around for the value of welfare benefits. I can assure you that even then I had a much higher standard of living than anyone trying to make it on the dole.
28-Cars-Later, I was perhaps hasty and overly harsh to say clueless. I’ve read plenty of your comments that prove you know your stuff on lots of subjects. However, I would suggest you haven’t actually given a whole ton of thought or investigation into the truth about America’s skimpy welfare state. Can’t blame you for it — the only reason I’ve given it much thought is because of my background.
The used more than new thing only happens when there are extreme factory incentives in play. I saw this a couple months back at the Fiat dealership – Fiat had something like $5K on the hoods of leftover ’13’s, so the new cars were a couple grand cheaper than the low mileage used. And the dealer was not budging on the price of those used cars, for the simple reason that there were only a handful of the leftover new ones, and when they were gone, they were gone. Seems like this sort of thing must be pretty common in the pickup truck market especially.
Also, just because they are asking a certain price, doesn’t mean it is going to sell for that much. As the saying goes – if you find a better deal, take it!
Ultimately, I think cash for clunkers has caused the floor price of a cheap used car to go up, while the 2008-2010 sales calamity of new cars is propping up prices of newer used cars. Both will inevitably work their way out of the system, and prices should fall. But on the other hand, cars really DO last a lot longer today, and people are really starting to notice that, which is also keeping the price of used cars higher – you don’t need as much of a discount to not buy new anymore. And part of it is simply inflation. The numbers get a little bigger every year. Today’s $20K used car was a $10K used car when I was in high school. The value proposition hasn’t changed all that much.
Well, imagine if C4C hadn’t happened and the several hundred thousand ’09 and ’10 cars that were added because of it weren’t built. Probably send used car prices even higher.
I think the floor on used cars is actually scrap value prices nowadays – if the junkman will give you $300 or $400 for a rusty non-runner, it’s got to be worth quite a bit more than that as an operating vehicle.
The mid-90s Explorers and Blazers still on the road aren’t worth very much, even though more of those vehicles were lost to C4C than any others, because people don’t really want them. The cheap-to-keep mid-’90s cars that today’s buyers want are still here because they didn’t qualify for the program.
Too bad this doesnt include 08-09 H2 pricing, they’re approaching their original cost brand new with 30k+ miles.
H1 alphas are long since well above original cost value for anything not well offroaded.
Appreciating in value and only 8 years old in the alphas case.
Rediculously high pricing.
There will be a surge of used EVs coming off lease soon; the 3-year lease clock started in late 2010 but really got moving in 2012 as the Leaf fleet grew (not to mention Teslas).
I’ve already seen used 2011 Leafs going for as low as $13k (dealer retail), with the same mileage my 2012 will have when its 3-year lease is up. No way I’ll pay the dealer another $18k to keep it then.
I really don’t know what the mfrs and dealers will do to move used BEVs.
Same way they move anything – cut the price, or other incentives. I fully expect to see Nissan have a program to put new (refurb) batteries in Leafs to move them. But it does seem like Nissan is going to be on the hook for an awful lot of Leafs that are simply not worth their lease buyout price. IIRC, the buyout on my buddies Leaf is over $20K! Though he is getting into mileage trouble on the lease (and in the winter on the Leaf too), since his kid got into a great private school that is 80 miles a day away. So he is ending up letting the Leaf sit so that it doesn’t rack up miles, and because when it is cold it can JUST BARELY do the daily mileage. Leases are great until your needs change…
Used car prices are coming down now, thanks to all the GM recalls! As an earlier article points out, prices of recalled GM models are dropping, even for models that have had the ignition/other recall repairs done. Eventually it’ll force non-GM car prices to drop as well, since there’s a flood of GM cars that have been recalled, and that price competition will drag down the overall market.
What makes you think if valuation on recalled GM stuff goes down, that it would drag down the whole market? If anything I would think it would slightly increase demand for non-GM brands.
This article reminds me of Steve Lang. What happened to him? He hasn’t had an article since June and isn’t listed on the masthead any more. Did he just disappear or did I miss an announcement?