As everyone from Transunion the credit reporting company to Wall Street are predicting an increase in new car sales for 2011, from 11%-15%, no one is talking about the current state of used car prices, and their potential slide (drop) in 2011.
As of right now, the annual “used car inventory sell-off” that usually occurs in December, didn’t happen. Dealers who traditionally dump aged inventory at auction, taking the loss on the books rather than pay tax on the asset’ value, didn’t have any inventory to “dump”. As a result, the auctions continued to hold prices on available late model used cars at the current high, stable for the last four months. Cars, vans and mid-size suv’s under $10,000.00 continued to be hot merchandise, while the larger suv’s and trucks showed signs of softening as gas prices stayed over $3.00 a gallon thru the first of the year.
Expect Suburbans, Expeditions, Navigators, Escalades, Commanders and v10 trucks to continue to slide in price, especially those over 75,000 miles. All the leather and dvd screens won’t help as banks limit the term of the loan making the payment higher than tolerable for that budget conscious family. Mini-vans under $14,000.00 will become even more popular with the seven-seater set, as the MPG and price carry a better payment, and the DVD player.
Unfortunately, I predict the lack of nice, inexpensive used cars on the market will continue through second quarter, as consumer confidence builds slowly towards buying new cars. The key components to helping the consumer feel like buying a new car include job stability, easing of credit to consumers with under 680 FICO scores and tax refunds which are especially necessary for those with trades in the $7-14,000.00 value range having remaining loan balances.
Consumers will have to have some cash down payment to absorb any negative equity on the trade-ins, as banks are NO LONGER willing to carry negative balances onto new car loans. This cash gap may force used car prices down from the current high to meet bank criteria to get the consumer financed and the deal done.
Banks will also begin evaluating the ‘loan to value’ of used cars from a different perspective; one that analyzes the monthly average value of the vehicle at auction, rather than a weekly changing kelly blue book or auction report.
I predict a drop of 10% in the current values of used cars by May 2011, not just from a typical depreciation scale but overall as the market adjusts with increased new car production, promotions and overall improvement in consumer confidence to trade.
Leased vehicles will figure marginally in this equation, as many current leasing customers have residual values below current market price. This “residual deal” enhanced with factory-backed low interest rate buy-back offers will lure the present owner to buy their current vehicle rather than to replace it with a new lease or buy, for budget or credit reasons. Hence the off-lease vehicle pool will not factor as an overwhelming cache of available product flooding the market and pressuring retail prices.
The luxury used car market, which has been soft this year will probably remain so through summer, with prices off by 20%. The only luxury brand not facing depressed value is LEXUS, which has held used car values through a combination of stricter leasing programs and consistent price increases over the last five years. The Lexus product has remained a high-demand vehicle.
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USED CAR AUTO PRODUCT WARRANTIES Available up to another 100k miles and 5 years for under $1500.00 call 702-788-3868 or email me sarahlee@mycarlady.com,mvides422@gmail.com,carlady@cox.net for more info.
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Sarah Lee is an automotive executive with 22+ years of experience. She writes about Cars, and is a staunch consumer advocate on car related subjects.
Her company: MY CARLADY is a personal car consultant service committed to helping you buy your next car and understand how to get the best deal on your next new or pre-owned vehicle. You can reach her at sarahlee@mycarlady.com,mvides422@gmail.com,carlady@cox.net
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