Supply And Demand Drive Used Car Values

by Don Elliott on January 26, 2012

Usually in this space, we identify used car values one car or one savings tip at a time. Sometimes the economy will provide an indication about where used car values are headed in the months and years to come. Which cars and trucks are predicted to go up in price? Which ones will hold their used car value? Should a savvy shopper buy new or used car to find the best car value?

The Situation

In 2008, auto production in the United States was curtailed by as much as 40% as a direct result of economic conditions. With fewer new cars in production, the total number of cars in operation began to drop. In July 2008, the total units in operation peaked at 242 million passenger cars and light trucks. Just three years later, in July of 2011, it appears that the shrinkage has stopped and begun to grow slightly, increasing by 500,000 units from the year earlier.

Auto data service provider R.L. Polk reports that cars and light trucks have been getting older, too. Light trucks and SUVs show the biggest increase, with the average age moving from 10.1 to 10.4 years in the past year. The average age of passenger cars increased from 11.0 to 11.1 years during the same period.

With fewer vehicles in operation, a decrease in supply, and little change in demand, prices for used cars and trucks have been increasing. Auto parts suppliers, auto repair shops, and service facilities have been kept busy keeping these vehicles on the road. The direct impact on consumers is that they have had to pay more for less.

The Car Production Forecast

The National Auto Auction Association monitors the flow of vehicles through the wholesale redistribution channel. Wholesale auto auctions, the place where car dealers buy and sell their used car inventory, have seen fewer vehicles in the auction lanes. However, prices in the auction lanes have been consistently going up, just as you would expect with the lower supply of used cars and trucks.

In a recent broadcast, NAAA Economist Ira Silver predicted growth in new car production over the next several years, forecasting an additional 1.5 million units to be built in 2012. In 2013, growth will continue by another 1 million units to 15.5 million units, according to Silver. It will take several months or possibly a year before used car sales volume will catch up to the new car sales growth because the scrappage rate of the older cars continues to exceed increases in new car production.

The Used Car Value

To find the best used car value, shoppers will have to watch changes in specific automotive segments to spot the best buys. As manufacturers gear up production on a specific model, it is not uncommon for them to use incentives to stimulate sales of models with increased supply. General Motors did this last year when they increased production of their Silverado light duty trucks. Big incentives have stimulated sales and increased the overall sales rate of their popular pickups.

At the dealership level, the sales staff needs to sell all of the cars in inventory, including any model that may be in greater supply. When used cars are in short supply as they are now, trade in values improve. By tracking the demand for the car you want and the value of your used car in the marketplace, buyers can maximize the amount of car they can get for the money. Used car shoppers can use the same technique to figure out which car segments and models are being traded in or coming out of commercial/rental service in volume. More cars results in less demand and often better prices. While you may have been spending money at the automotive repair shop, you will soon be able to reap the rewards of buying a used car with a great used car value.

Google+ Comments

Previous post:

Next post: