Used car prices falling after 5-year surge
This should be the best year to buy a used car or truck since the recession.
Prices are expected to drop for the first time in five years, and the best deals will be on late-model cars and trucks — those that are no more than three years old.
Indeed, the trend toward lower used car prices began in the second half of 2013.
The average used car and truck sold at a major dealership fell to $15,617 in the third quarter — July, August and September, according to Edmunds.com, an industry website that tracks such data.
That's down 2.8% from the previous three months and 0.9% from the third quarter of 2012.
The average transaction price hasn't been that low since the third quarter of 2009, when it was $14,808.
It's almost always smarter to buy used rather than new, but a shortage of quality preowned vehicles over the past several years made it hard to find the find the right ride at a reasonable price.
The slump in new car sales was a major reason.
Trade-ins are a major source of used cars. According to used car experts at Black Book, another collector of industry sales data, six of every 10 new cars sold involve a trade-in.
The fewer new cars sold, the fewer used cars available for sale.
By the numbers, dealers sold just over 16 million new cars and trucks in 2007. That total dipped by nearly 3 million in 2008, and nearly another 3 million to 10.1 million new vehicles sold in 2009. That's more than one-third of new car sales gone!
Not until 2010 did new car sales begin to come back, but they were still more than 4 million short of 2007 totals.
By Black Book's reckoning, more than 7.5 million used cars never made it on to dealers' lots during those three years.
Like everything else, the tighter the supply of used cars, the more expensive they are.
Steadily recovering to nearly 15.6 million last year, new car sales have bounced back to almost 2007 levels and are expected to exceed them in 2014.
Likewise, used car supplies are also approaching 2007 levels. Full used car lots should translate into an overall average price drop, say the experts.
But why might the prices of newer used cars be more attractive than ones that are four to six years old?
There are two reasons.
First, those drastically lower new car sales in 2008 through 2010. Fewer new cars sold then resulted in fewer used cars from those model years now.
Then there's another big source of used cars — leasing.
The car companies virtually stopped leasing cars and trucks at the nadir of the recession.
But a rebound began in 2010, and this year nearly 3 million cars will come off two- and three-year leases, according to Scott Hall, executive vice president at Swapalease.com, a website that arranges lease transfers.
This flood of late-model, off-lease cars should also help lower the relative price of these newer cars compared to the harder-to-get used cars from 2008 through 2010.
Although the overall average price of used cars is expected to go down this year, our Black Book experts were quick to point out that “average” means some types of vehicles may go up in price, while others go down.
Unless gas prices take a big jump up this year, Black Book forecasts the best used car bargains will be in those segments where mileage is higher and fuel costs lower.
With the economy improving, consumers who might have favored a compact car will opt for the extra space of midsize sedans.
But according to Edmunds' latest data, the hottest-selling used models are compact trucks, midsize traditional sport-utility vehicles, and compact and midsize cars.
You'll get a better deal on those used cars and trucks that take dealers the longest to sell — large crossover SUVs and full-size vans and cars.
You'll also pay more to buy cars and trucks made by the most popular brands for used vehicles — Honda, Toyota, Lexus and Nissan.
It's easier to negotiate a lower price on models that tend to sit on lots a little longer — Volvo, GMC, Chevrolet and Cadillac.
But regardless of what you might be on the market for, we believe 2014 will be a good year for used car shopping.