High Used-Car Prices Spur New-Car Sales

“The shortage of used cars is one more pillar of strength for the new-car market,” says NADA Chief Economist Paul Taylor.

Special Coverage

NADA Convention & Exposition

SAN FRANCISCO – Auto makers ironically can thank a vibrant used-car market for helping to drive a projected 12% increase in new-vehicle sales this year, says Paul Taylor, the National Automobile Dealers Assn.’s chief economist.

Taylor cites two main reasons why he expects pre-owned cars will play a big role in 2011 new-vehicle sales that he predicts will reach 12.9 million units. That compares with 11.5 million in 2010.

One, because of high demand and low supply, used-car prices are strong. “That narrowing spread between used and new prices will help new-car sales,” Taylor says at the NADA annual convention here.

“As prices get so high for used cars, consumers will say, ‘Why should I buy used when I can get new for not that much more?’” he says, predicting even some typical used-car buyers might ask that and end up buying a new vehicle.

The average wholesale auction price for pre-owned cars was $13,500 in November after spiking to $14,700 in July.

Used-vehicle auction prices could increase as much as 10% this year, predicts Jonathan Banks, executive automotive analyst for “NADA Used Car Guide.”

A second reason used-car activities may aid new-car deliveries is the strong values of trade-ins. “Consumers are going to dealerships with equity in their used cars,” Taylor says.

High trade-in values and low interest rates are combining to enhance the lure of a new-car purchase, Banks says. “Customers will benefit from high trade-in values in 2011, which will help facilitate a new-vehicle purchase.”

Used-car supplies are low today as a result of new-car sales plummeting from 16.1 million in 2007 to 13.2 million units in 2008 and to an industry-shattering 10.4 million in 2008. New vehicles sold in those two horrible sales years now are used, and there are millions fewer of them than usual.

“The shortage of used cars is one more pillar of strength for the new-car market,” Taylor says.

Also helping the new-car cause is that auto makers are producing a slew of new products, he says, citing the debut of nearly 50 cars and trucks at the North American International Auto Show in Detroit in January.

“If we didn’t have that product, we wouldn’t be predicting such an increase in new-car sales,” Taylor says. “It is essential that the auto industry create excitement among consumers.”

Banks adds, “We’re hearing from dealers that customers are replacing their vehicles not only out of need but also because they want to.”

Taylor, a Chevrolet Corvette aficionado and owner of six vehicles, adds, “I don’t believe the American public’s love affair with cars is over.”

On the negative side, housing prices remain weak, hurting auto sales. People who see their housing values drop often aren’t in the mood to buy a new car, he says. “One big-ticket item affects the sales of another big-ticket item.”

Another “drag-down” is a gross domestic product that increased just 3% in all of 2010, compared with 7%-8% typically seen in post-World War II recession recoveries.

Meanwhile, a stubbornly high unemployment rate not only shoves people without jobs out of the car market, it also jolts consumer confidence, even among jobholders, Taylor says.

Looking further out, it’s reasonable to expect new-vehicle sales to reach 14 million units in 2012, he says. “We’ll see 16 million again. It just won’t be next year.”

[email protected]

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.