Used Car Values – Where Are They Headed?

by Don Elliott on October 18, 2011

According to Tom Webb, economist for Manheim Auctions, the Manheim Used Vehicle Value Index slipped for the fourth month in a row. However, September 2011 wholesale prices remained up 3.4% over September of 2010.

In case you haven’t been in the car market for a while, several factors have caused used car prices to be abnormally high for the past 24 months. The domestic financial problems that began in fall 2007 caused a significant decline in the number of new cars built. There was a decline from a high of about 17 million units to a low of 9 million units, which severely impacted the number of late model used cars available in the wholesale marketplace. As the economy has recovered, demand has increased for cars and trucks.

The Manheim Used Vehicle Value Index tracks wholesale auto auction transactions as an indicator of retail prices on car dealer’s lots. Generally, a declining price trend would be good news for consumers. That is mostly the case here. Looking more closely at the numbers by segment yields, you can get a clearer picture of where used car prices are headed.

Compact cars remain 9.2% higher than the same month last year. By comparison, SUVs were down 4.9%.  For the smart shopper, the trend does not mean that you should be shopping for an SUV over a compact car. SUVs were unusually high priced last year and continue to be in demand, even though they are showing some relative price declines.

Webb points out that even though new car production is tracking at 13 million units for this year, there continues to be a shortage of late model used cars at auto auctions. The shortages allow new car dealers to be more flexible with incentives and reduce prices to make new cars more attractive.

There is a silver lining here. New car sales were up a whopping 10% in September. New car sales generate used car trade-ins. Manufacturers are predicting increased new car sales for the next several months. There is good cause to anticipate more used cars coming on the market than we have seen over the past several months. Unfortunately, even though the selection might improve, prices probably won’t change much. The inventory shortage is that significant.

One last point, this week’s “Automotive News” reports the average vehicle in operation in the U.S. is more than ten years old. Market factors dictate that these cars will have to be replaced before too long. If your car is “average” or older, keep an eye on the market. Good news might be just down the road!

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