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Saturday 19 August 2017
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Is The Used Car Bubble About To Break? Car Pro Commentary

I have talked many times over the past year and a half on The Car Pro Show about sky-high used vehicle prices. It is the most unusual thing I have seen in 35 years of watching and reporting on the auto industry. Going back four years, we could count on truck and SUV prices falling when gas topped $3 per gallon, but that hasn’t been the case in recent times.
We know the reason for the high prices of late model used cars, it was a shortage. Since 2008, there have been fewer trade-ins on the market and leasing dried completely up and except for luxury cars, was almost non-existent. A normal leasing year in 2008 and 2009 would have dumped thousands of cars on the market last year, but they just weren’t there. Many of the rental car companies have scaled back operations or gone out of business, which was another stream of used cars.
One of the reasons the auto industry has been on the upswing in the past two years is because of the high used car values. Fewer people were “upside down” in the cars, meaning they owed more on their car than its actual value. More people had a surprising amount of equity to help them purchase their new vehicle.
There is now very concrete evidence that prices will start to fall on used vehicles. We have seen six weeks of decline in auction prices nationwide. Part of that could be a seasonal adjustment, but we did not see this last year, so I think the case can be made that this is now a trend.
The big things that point to prices declining will occur next year. Barring a national tragedy in the next few months, the auto industry will sell 14 million new vehicles in 2012, and that will create a lot more trade-ins in the fourth quarter, many of which will happen in December of this year. I predict there will be an excess of trade-ins to start 2013, and that will drive prices down.
According to the good folks at Edmunds.com, the projected number of vehicles coming back from leases in 2013 will be almost 2.6 million vehicles, an increase of over 600,000 vehicles from 2012. That is a significant increase and will also drop used vehicle prices.
If the economy continues to improve, a conservative estimate of new car sales is a 10% increase in 2013. That is roughly an additional 1.4 million sales next year, with the large majority of those having trade-ins.
Roll all those factors into the mix and it appears the used vehicle shortage will turn into a used vehicle surplus in pretty short order.
Take this into consideration when trying to figure out the best time to purchase a new vehicle. Late model used car values have been up $2000 or more in the past year, and odds are, prices will fall by at least that much in 2013. In the case of larger vehicles, if gas prices stay high, the decrease could be even greater.




2 thoughts on “Is The Used Car Bubble About To Break? Car Pro Commentary

  1. Don Weber

    Upside Down

    Bought a 2010 Corolla for $18,000 with 16,000 miles in August 2011. Went to look at a Camery because of the deals being offered. I was told I am upside down on the Corolla, I still owe $15,000 but its only worth $9,000 from the same dealer.
    So I will keep driving to and from work, 50 miles a day, with the Corolla getting 35 + mpg.
    dlw

    Reply
    1. Jerry Post author

      Don, I would get a second opinion on the Corolla, that value sounds VERY low to me unless you’ve put a ton of miles on it. I think I would check with a different dealer OR get a free cash offer from CarMax to see what their opinion on it is.

      Let me know if I can help you!

      Jerry Reynolds “The Car Pro”

      Reply

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