Used Car Prices Hit Record High             

In another sign that the new car market’s recovery has not yet peaked, the average used car price hit a record $16,800 last year, according to a report from Edmunds.com

That marked a 5.7% increase from 2013’s average of $15,900. Higher used car prices mean that the resale value of three- and four-year-old vehicles coming off leases is strong. They also mean that people looking to buy new cars are likely to get reasonable offers on the models they trade in.

The main reason for last year’s gain is the growth in what automakers and their dealers call the “certified pre-owned” market. These are mostly off-lease vehicles that dealers recondition and offer as alternatives to bargain hunting consumers who don’t want to buy a new vehicle.

U.S. dealers sold a record 2.3 million CPO vehicles last year or 21% of the nation’s used car market, up from 1.53 million in 2009.

“We fully expect CPO popularity to continue throughout 2015 because many leased cars are being returned in excellent shape and lightly used cars are being traded in at faster rates than in previous years,” said Jessica Caldwell, an analyst at Edmunds, a car-shopping information service.

Edmunds broke down the 2013 to 2014 used car price changes by age of vehicle. The increase in average selling price of 1-year-old and 4-year-old vehicles was about the same as the 5.7% jump of the entire used car market.

Surprisingly, the average price of 8- and 9-year-old models jumped 8.8% and 8.5% respectively, and they ranged between 10.5% and 15% for those that were 11-years-old or older.

Edmunds’ Caldwell said vehicles between 11 and 16 years old benefited more from falling gasoline prices because buyers weren’t as concerned with fuel economy as they were with utility.

Melinda Zabritski, director of automotive credit for Experian, a credit analysis firm, said the increase in subprime auto lending could be another contributing factor reinforcing older vehicle prices because subprime borrowers tend to purchase older vehicles.

The other factor driving the certified pre-owned market is the rebound in leasing, which now accounts for about 27% of all new vehicle transactions, up from about 18% in the worst of the Great Recession in 2009. More than half — 53% — of luxury car transactions were leases last year, up from 42% in 2008. So the population of vehicles those lessees return in 2017 or 2018 will be skewed toward the higher end of the price spectrum.

As leasing approaches 30% of the new vehicle market, used car prices could soften sometime later this decade.

A study released last November by Autotrader.com and its affiliate Manheim Consulting, projected that the number of vehicles coming back to dealers will climb from about 2.2 million last year to 3.4 million in 2017.

“The supply is building and prices are dipping some, but not collapsing,” said Michelle Krebs, an analyst with Autotrader.com.

Experian’s Zabritski predicts used car prices will remain strong for the near term.

“You’ve got a combination of rising prices coupled with an increase in the end-of-lease returns so we’re probably going to see used prices leveling off,” she said.

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