Used Car Prices Drop to Four-Year Low in Q3

TASA ID: 4286

Used Car Prices Drop to Four-Year Low in Q3

As reports came in this week outlining used car auction price drops last month, the Edmunds.com Q3 Used Market Quarterly Report released Wednesday claims that pre-owned prices have dropped to a four-year low on the lots.

As used supply continues to increase, putting downward pressure on used prices, Edmunds.com reported the average used car sold by franchised dealers in the third quarter was priced at $15,617.  This is 2.8 percent lower than in the previous quarter, and 0.9 percent lower than rates seen during the same period of 2012.  Edmunds.com reported the last time used car prices ran so low was in the third quarter of 2009, when the average car sold at a franchised dealership was $14,808.  After years of high prices, this news might serve to bring significantly more consumers out onto the used car lots.  And even though Edmunds.com reported that Q3 used vehicle sales came in at 9.3 million, down 0.6 percent year-over-year, franchised used sales have increased - rising 2 percent to come in at 2.81 million this past quarter.

Where are the best deals?

Edmunds.com said Volvo, GMC and Chevrolet vehicles stayed on used dealers' lots the longest in Q3, and lack of demand will serve to push these brands' rates down even more.  On the other hand, Japanese brands such as Honda, Toyota and Lexus were in the most demand in the third quarter - "and; therefore, likely carried the most elevated prices," Edmunds.com reported.  By segment, the entry luxury car, large crossover SUV, and premium sport car segments saw the biggest drops from last year, down 6.2 percent, 5.9 percent, and 4 percent, respectively.  On the other hand, the van segment made the largest year-over-year jump, rising by 9.5 percent in Q3, according to Edmunds.com data.

And the price drops aren't expected to stop here.

 "Used car prices will likely continue to decline in the coming months simply because there will be more of these vehicles sitting on dealer lots," said Edmunds.com's director of used car analysis Joe Spina.  New car sales in Q4 may serve to push rates down further, as well.  "As we head into Q4 2013, consumer interest will continue shifting to new vehicles with the end-of-year sell-down of 2013 model year vehicles," the report reads.  Analysts explained that increased trades from these new car deals will work to create more supply, and in turn, will lower prices on pre-owned vehicles.

Analysis of Auto Remarketing staff member's, "Used Car Prices Drop to 4-Year Low in Q3"

Well, yes, the inventory rise will keep stocking up until the end of the year as this trend is usual in the last quarter.  The tell-tale signs will be in the New Year around the last weeks of January, this is when the heat will either prevail or lay flat.   Meaning, the used car market is soft in the end of the year and when the New Year turns, the market heats up fast and furious. This has been the trend for the last three years at www.DealerReady.com our auction. 

The fundamentals are usually due to consumers receiving tax refund checks and electronic deposits come the New Year.  This drives customers into dealerships, and with rates as low as 1.9% for a used car loan, who could go wrong?  Most of our dealers have had strong third quarter results with used cars, and experiencing adequate new car sales as well.  That being said, our franchised dealerships are taking in a large volume of trade-ins (remember only about 20 percent on average are keepers), the rest are typically wholesaled or auctioned off due to excessive mileage, safety reasons or reconditioning.  At this point in time, dealers are ridding any excess inventory they have aged on their lot (typically 45 days or more is considered aged) and tidying things up for January.  The other factor is the "hot car" effect.  If a vehicle is three years old and has less than average miles on it with no accident history, it's usually classified as a "hot car" in the market (no matter what time of year it is).  A 2010 Toyota Corolla with 19,000 miles on it will always be a desirable unit that a dealer can use.  These cars typically have no cool down, they don't compete with the late model rental fleet generic units, and their pricing gap is usually far enough from the current year models that will attract most consumers.

Reprinted with permission from the November 14, 2013 edition of Auto Remarketing. All rights reserved.  Further duplication without permission is prohibited. For the original article, click here.

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