I have been talking about this on the air for well over a year. I have never seen a time when used cars were sky high, and new cars had big incentives. It appears there is no end in sight.
Customer Mike Hogan didn’t expect more than $1,500 for his trade-in, a 13-year-old, stick-shift Subaru Forester with 129,000 miles on it.
The dealer offered $2,750.
“I suppose I undervalue my used cars because I drive them for so long,” said Hogan, 49, director of a domestic violence program.
The dealer likely still will make money. Cars.com national inventory shows dozens of 1999 Subaru Foresters with more than 100,000 miles at a median listing price just shy of $5,000.
That same used-car price inflation that has pumped up the value of his wife’s Subaru caused him to trade it in January not for a late-model used car, as is his habit, but for the couple’s first new car in many years — a Kia Soul hatchback.
“We are both longtime used-car buyers,” Hogan wrote in an e-mail. “We most often try to purchase low-mileage used cars that are only one or two model years old. … Given the inflated prices at the time, we did not consider seriously any used models.”
Three years of depressed new-car sales have driven used prices to historic highs, and it likely will take years, not months, before they come down.
From 2008 to 2011, car shoppers bought more than 19 million fewer vehicles than earlier in the decade. That, in turn cut the number of used cars available to used-car shoppers like Hogan.
New-car sales had handily outpaced the number of cars being scrapped by at least 3 million from 2000 to 2007, according to CNW Marketing Research, and the total number of vehicles on U.S. roads ballooned over that period from 205 million cars in 2000 — or 73 cars per 100 Americans, according Polk and census data — to 241 million in 2007 — or 80 cars per 100 Americans.
Then came the recession. From 2008 to 2011, Americans bought just 48 million new cars, while junkyards scrapped around 47 million, and total cars on the road plateaued at around 240 million. The number of Americans driving them continued to grow, however, and the number of cars per 100 Americans slid back to 77.
Fewer cars in circulation drove up used-car prices, particularly as drivers hung onto their vehicles longer and longer. A collapse in auto leasing in 2008 exacerbated the situation, leaving the pipeline dry for late-model used cars in 2011 through today — the types of cars Hogan and many others typically zero in on when car shopping.
The result? The average used car went from $9,022 at wholesale in December 2008 to $9,878 three years later, according to Automotive News and ADESA data.
The numbers hit home even more when you consider Cars.com data for some of the most popular car searches by shoppers, such as the Ford F-150, Ford Mustang, Honda Civic, Jeep Grand Cherokee and Toyota Camry. Across those five models, listed prices for used cars 5 years old or newer are up 29% since April 2009, far more than the rise in new-car sticker prices over the same period.
What needs to happen for the high prices to reverse?
Exactly what is happening in 2012 — just more of it over more time. New-car sales are up 10% through April and IHS Automotive estimates Americans will buy 14.3 million new cars this year. Meanwhile, CNW projects around 12 million cars to be scrapped, which will raise the total number of cars on the road.
Also, used-car demand has been falling, though it might be from shoppers making the same new-car choice Hogan did. In 2010, shoppers bought 3.2 used cars for every new car, according to CNW. In 2011, that ratio fell to 3.0 as relative demand for used cars fell.
That, combined with a slow but steady influx of more used cars, means prices will decline. Average wholesale used-car prices fell 2% year over year in February, the most recent month available, says Automotive News data. Auto Remarketing, a used-car publication, meanwhile notes that auto leasing has stabilized — around one in five cars — since early spring 2011.
The relief will be very slow in coming. The bulk of 2011’s leases won’t turn over until 2014 and beyond. February’s average wholesale price for a used car is just $31 less than last December’s.
It might work out in time for Hogan’s next car purchase. While his wife drives the Soul, he hopes to get a few more years out of his 2005 Toyota Sienna minivan, which he bought in 2007.
“I am hoping to get another three or four years,” Hogan wrote. “And I expect, by then, you will be able to get good value in low-mileage used cars again.”