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Friday 18 August 2017
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Next Problem: Used Cars

As I follow the developments in Japan and how they will affect the auto industry, there is just no doubt that as we go forward, the tragedy there is going to touch every automaker in the world. Those that were centered around the quake zone will be hurt worse, but virtually every auto manufacturer relied on parts and components from that region. None of us knows at this time how adversely this will impact individual car companies, but we know for sure that small, fuel-efficient cars were already short in supply before the earthquake and tsunami.

So we can see the issues coming at us with new vehicles, but what about used? I think we are in for a roller coaster ride there too. The Japan tragedy aside, I look back to 2008 when gas prices topped $4 per gallon nationally. Small vehicle prices went through the roof, while larger truck and SUV prices fell like a rock. I think we will see half of that occur again, and in fact we already are.

In 2008, we did not really have a shortage of small cars going into the rapid gas escalation, but as time passed and gas prices kept rising, we ultimately saw a real shortage of the gas misers. Auto companies scrambled to build more small cars, but their efforts were not in time and America turned to pre-owned small cars. In short order, we saw a real shortage of those too. People scrambled to trade in their larger vehicles for smaller ones, creating a glut of large vehicles. I watched prices on trucks and SUVs plummet, seemingly overnight.

Small used cars, and in particular hybrids, started rising right after the first of this year. Part of that was due to gas prices going past the $3 per gallon mark, but part of that was just seasonal rising of prices that happen every year. I continued to monitor some of the popular used cars like Corolla, Civic, Focus, Prius, Sentra, and others. It was about three weeks ago when used cars went through the roof. It is not coincidental that the value rise came right after the Japan situation. Savvy dealers began to buy every small car they could find.

In just one month, Prius prices at the auction went up over $2000 on average at auctions across America. While other small used cars were not up as much, prices rose around $1500 on the most popular models. The trend continues too, although the acceleration has slowed some over the past week, but it important to note that prices continue to go up and frankly, there is no end in sight.

The weird thing is we have seen a rise in pickup and SUV prices too over the past six weeks according to dealers in Texas and California. More alarming, they were already sky high. In 2008, prices started to fall just as we passed the $3 per gallon average, but there is nothing to indicate prices are starting to go backwards. Again, looking back at 2008, new truck and SUV sales were the worst in decades, so there have not been as many coming back onto the market, causing a shortage of them that has lasted for over a year. Let’s face it, there is a certain number of people who want or need larger vehicles, and this is keeping prices high.

About the only untouched segment is mid-sized cars and minivans. There has been no appreciable movement in prices on either.

It is going to be interesting to see what happens with this used car market as we go forward. We are truly in uncharted waters here.

Jerry Reynolds is The Car Pro Show heard Saturdays 10 am to 12 noon on News Talk 650 KSTE AM and 12 noon to 1 pm on News Radio 1530 KFBK AM. Jerry is a member of the Texas Auto Writer’s Association and is the former Owner of a large chain of automobile dealerships. He also serves as the Automotive Expert for FOX 40 in Sacramento. Jerry can be contacted at: www.carprousa.com