New cars now built for profit not just volume Banks says

New cars now built for profit, not just volume, Banks says.

Used-Car Prices Lose Some Muscle, Analysts Say

As the new-car industry recovers, the demand for used cars slackens a bit.

PHOENIX – Used-vehicle prices will stay strong in 2013 but lose some of the muscle they’ve been flexing.

That’s the forecast of analysts who track vehicle resale values. At the National Remarketing Conference here, they agree pre-owned vehicle prices will stay healthy but not as robust as in past years.

“It’s a correction,” Juan Flores, Kelley Blue Book’s director-vehicle valuations, says of the expected adjustment of used-car prices. “I’d call it a conservative move from the highs we’ve seen.”

Don’t expect the used-car price bubble to burst, says Jonathan Banks, an analyst for the National Automobile Dealers Assn. “

“What are we correcting?” he says. “This isn’t like what happened to the housing market, where there were incredibly low interest rates and banks had incredibly generous lending policies.”

Instead, used-car values have climbed steadily in a market of high demand and tight supply.

The demand comes, in part, because during the recession many consumers facing financial difficulties opted to buy less-expensive used cars than new cars. 

Used-vehicle supply has been low the past few years because the auto industry sold fewer new cars in 2008 and 2009. That, in turn, lowered the number of used cars that ultimately would enter the market.

Used-car prices will stay strong, but analysts say they will face greater competition from the new-car sector as sales there continue to recover from the 2009 trough year of 10.4 million units. Auto makers expect to sell about 4 million more than that this year.

“Dealers for 18 months focused on used vehicles,” Flores says. “With the new-car industry coming back with new models and new designs, dealers will see more new-car shoppers. We expect a lot of foot traffic for both new and used cars.”

Auto makers are “past their evil ways” by now matching production to demand, says Tom Webb, chief economist at Manheim Consulting, a unit of Manheim Auctions.

Previously, domestic auto makers pushed cars onto the market, glutted it and hurt vehicles’ residual values.

“Now we have manufacturers building cars for profit, not for volume,” Banks says.

“The new-car market is primed for 2013,” Flores says. He predicts many people who had switched from buying new cars to buying used cars in recent years will switch back to new vehicles.

But pre-owned vehicles are expected to remain popular with many people, ranging from bargain hunters to those still struggling economically.

“Folks who are credit-challenged are more likely to buy used,” Flores says. “A significant number of people still are in that situation.”

Lenders have eased credit restrictions but still express concerns about a couple of used-car issues.

One of those issues is length of loans, says Ricky Beggs, managing editor of Black Book, a used-vehicle price guide. “If you are talking about a 6-year loan on a 6-year-old car, how much car do you have left?”

Analysts say Hurricane Sandy will cause a temporary increase in used-car prices in affected regions. But Kelley Blue Book doesn’t expect that to last long or prices to soar.

Kelley senior market analyst Alec Gutierrez anticipates only modest regional market increases, $200 to $300 at most.

“While we may see some price appreciation on the East Coast, from a national perspective, values will remain relatively flat,” he says.

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