by Jon LeSage, remarketing editor at Automotive Digest
We’ve been hearing a lot about how used car prices will be softening. Well, that moment seems to have arrived, with further evidence coming from the Edmunds quarterly report.
Average retail used car prices have dropped to their lowest level in four years — $15,617 in Q3 2013 compared to $14,808 in Q3 2009.
According to Edmunds.com’s quarterly report, post-recession prices hit their peak at $16,473 in Q2 2011.
What’s behind that? Joe Spina, director of used car analysis at Edmunds.com, says that new cars are where the demand is going. New car offerings and sales have hit a strong pace, and buyers are no longer drawn to used cars the way they were before.
Spina says that used car prices will continue to decline in the coming months because there will be more of these vehicles sitting on dealer lots.
Analysts watching the wholesale value would point to growth in off-lease vehicles returning to auctions and dealer showrooms as the key driver to price softening. Some of them also point to more used cars being traded in for new cars as another price softening agent.
Loans for new vehicles are plentiful, which also contributes somewhat to used car prices softening as new cars become a more attractive choice for a lot of consumers.
According to the latest State of the Automotive Finance Market report from Experian Automotive, outstanding balances on automotive loans reached $782.9 billion, up $103 billion from Q3 2012. Lenders can take on more risk and offer more loans because of the availability of credit and consumers showing strong performance repaying their loans. That paves the way for higher auto sales.
The good news for dealers in this environment is that there are other ways to strengthen profits in used car sales, with one of them being sales volume. A lot of market reports are showing used vehicle volume continuing to be strong – franchised used sales were 2.8 million in the third quarter, up 2% quarter-over-quarter and up 11.2% year-over-year, according to the Edmunds quarterly report.
