After Running Hot, Market for Used Cars Is Cooling
RIVERSIDE, Calif. — It was 9:30 on a recent Tuesday morning at Manheim Riverside, a wholesale auto auction, and more than a thousand used-car dealers were mulling in the desert heat. The bidders had gathered on the perimeters of Manheim’s 10 lanes of cars, watching the vehicles cycle through 10 different auction blocks, at no longer than 45 seconds a pop. Over a collective din that drowns out the auctioneers, the dealers wink, nod or, for the less stealthy, raise a hand to indicate their bid.
The wholesale auction is just one of the hundreds across the country that set the pace — and the price — for most Americans who buy used cars. Often viewed as an afterthought, the used car market is far larger than the one for new vehicles, with more than double the sales, and automakers pay close attention to the ebb and flow of its prices.
And those prices are about to decline from some unusually high levels, analysts say.
During the recession, consumers stopped buying new vehicles and automakers trimmed production, eventually creating a shortage of the most sought-after used vehicles — later models with low mileage. Used-car prices surged.
Just ask Shane Wilson, an information technology administrator in Plano, Tex., who bought a 2011 Honda CRV in July. The shortage of late-model sport utility vehicles made it difficult for him to get the price he wanted, so he had to time the sale right, in a three-hour negotiation with a dealer where he and his family walked away once.
“It was the end of the month, and it was also the end of the day,” he said. “We stuck with a set price for what we wanted and we got them at the right time.”
But prices are beginning to moderate from those heady days when dealers scrambled just to find used cars to sell. Then, the monthly payments on a used car could equal the payments on a similar new car because of interest rates and financing terms, and because of robust demand from consumers.
“It’s slowly coming back to a point where it doesn’t feel like there’s a shortage anymore,” said Jeff Laethem, owner of Ray Laethem Motor Village in Detroit and Grosse Pointe, Mich. “That said, I’m still having a hard time getting cars.”
The average price of a used car surged 10 percent, to $16,474 in 2010 from $14,976 in 2009, according to the National Automobile Dealers Association. In the first seven months of this year, the average price has climbed 2 percent, to $17,926, over the same period last year.
At Manheim Riverside, about 2,000 cars cruised past the dealers and most of them sold, finding their way onto lots from Phoenix to Seattle to New York. The same scene was unfolding at other auctions across the country.
Auctioneers calling out prices to dealers bidding on used vehicles at Manheim Riverside.CreditMichal Czerwonka for The New York Times
“This is the marketplace,” said Chris Brown, general manager at Manheim Riverside. “At the end of the day, this is where buyers and sellers come together.”
The vehicles sold at auction are a mix of trade-ins from buyers who purchased new vehicles, bank- or manufacturer-owned cars, or cars coming off lease. At Manheim, the country’s largest wholesale automotive auction company with 65 locations including Riverside, about 130,000 cars roll through its lots nationwide every week.
“For me, it’s a ballet,” Mr. Brown said with a sweep of his arm across the 200-acre lot. “It’s a great motion. What starts here goes here and ends up here.”
In Michigan, Mr. Laethem’s dealership traditionally obtained almost all of its used vehicles from trade-ins. But in 2009, it had to turn to online auctions, which Manheim also runs; sales held by rental car companies; and for-sale-by-owner advertisements to fill its lots.
“We would actually go to people’s homes to look for cars,” Mr. Laethem said. “Anything to satisfy demand.”
Cliff Wood, executive vice president of stores at CarMax, the nationwide used-car chain, said that 85 percent of its inventory was traditionally in the zero- to four-year-old category — the “sweet spot,” he called it. “That fell to 70 percent in 2010 when fewer later model cars became available,” he said.
Now supply is coming closer to meeting demand, analysts said.
“It’s always hard to find a good, clean used car, and it will always be that way,” said David W. Westcott, chairman of the National Automobile Dealers Association and president of Westcott Automotive, a Buick and GMC dealership in Burlington, N.C. “But is it better now than it was three or four years ago? Absolutely.”
Manheim Riverside has sold almost 10 percent more cars through September this year compared with the same nine-month period last year. Sales at auctions nationwide are expected to climb 4 percent this year, to 8.2 million.
The price of used cars between one and three years old is expected to fall 1.5 percent in 2013 compared with the previous year, according to the National Automotive Dealers Association. That’s because demand for new vehicles coupled with higher incentives from manufacturers and dealers will probably soften interest in later-model used vehicles.
“You don’t have to pay quite as much as you did a few years ago because there is more availability,” Mr. Westcott said. “It will be a small fluctuation, sure, but it’s not going to drop 10 or 20 percent.”
Dealers can inspect the used vehicles before they go onto the auction lane. The market for used cars is far larger than that for new ones. CreditMichal Czerwonka for The New York Times
At the same time the dealers association expects prices for used cars between four and six years old — a period that coincides with the depths of the recession — to rise 1.5 percent over last year as the supply shrinks.
“Even though there’s a decline, prices are still high for used cars,” said Joe Spina, a senior analyst at the industry researcher Edmunds.com. “It’s definitely a better time to buy than last year, but if you can wait, prices are just going to keep going down.”
Automakers expect to sell more than 15.5 million new vehicles in the United States this year, compared with 14.5 million last year. Used-car sales are expected to reach 41.25 million this year, up from 40.5 million last year, according to CNW Marketing Research, a firm in Bandon, Ore.
That’s closer to the pre-recession high of 44 million than the recent low of 35.5 million in 2009.
The return of new-car leasing, which slowed during the recession, will be instrumental to the used-car market, according to analysts.
“This is the first year we’ll see a significant amount of cars coming off lease,” Mr. Spina said.
Supply is likely to match demand as those cars that were leased in 2011 reach the resale market in 2014, said Tom Webb, Manheim’s chief economist, on a conference call Monday.
“The leases were the right residual, the right car and the right customers,” Mr. Webb said.
That rising number of leases this year is likely to spell lower used-car prices in 2016 when those leases end, Mr. Webb said. The industry projects 3.2 million vehicles to be leased this year, which could flood the market with excess inventory in three years.
But, for the foreseeable future, late-model compact and midsize cars and small sport utility vehicles — the type of vehicle currently coming off lease — are in demand.
“It’s that $12,000 car that’s the perfect sweet spot,” Mr. Laethem said, “the kind with a $250-a-month payment.”
Marcy Goldstein of Bloomfield Hills, Mich., had little trouble trading in her 2007 Saab 9-3 sedan this year. It had fewer than 40,000 miles on the odometer, and the dealer insisted on buying it immediately even though her new car would not be available until the next day.
“They sure were eager to get the Saab,” Ms. Goldstein said. “They even gave me a loaner overnight until my new car was ready for pickup.”