Used-car demand jumps, but the supply is down - East Valley Tribune: Business

Used-car demand jumps, but the supply is down

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Posted: Monday, May 9, 2011 2:35 pm

Economic pressures of the last few years have pushed many consumers out of the new-car market in search of a cheaper alternative, good news for used-car dealers, if only they could find enough cars to sell.

But reduced production of new cars, federal incentive programs, exorbitant gasoline prices, natural disasters and other factors have conspired to reduce the supply of used cars on the market to a trickle and, as a result, drive prices through the roof.

"It's pretty crazy right now," said Tom Hughes, of San Bernardino, Calif., a used-car dealer for 27 years. "I've never seen anything like it."

Hughes said prices and availability have never been this bad -- not by a long way. A car that would have cost $5,000 wholesale six months ago might cost $6,500 today, he said. And if it's a Toyota or a Honda, "it's insane."

Hughes said it's tough to find vehicles he thinks he can sell at prices that make sense. As a result, his inventory has dropped from about 40 cars at a time to 20. "If you don't have the cars, it doesn't matter how much activity you have," he said.

Recent research by Cars.com found used-car prices have increased 10 percent, on average, over the past year. Although prices were up across the board, spikes were higher for some brands. Hyundai prices were up 22 percent, for example, and Ford prices were up 14 percent.

In extreme cases, used cars have even appreciated in value as they've aged. A 2007 Hyundai Elantra with 40,000 miles on it listed last year for $9,900, according to Cars.com. That same car today costs $200 more, even with an extra year and a few thousand more miles on it.

Edmunds.com, another auto-industry research site, reported similar findings. Prices for 3-year-old Honda Accords are up 24 percent since September, the website reported. They're up 12 percent for a Nissan Sentra.

Joe Wiesenfelder, senior editor of Cars.com, said price increases have been the norm since the economy turned in 2008. It's all a matter of supply and demand, he said, but there are many factors at work.

Leasing programs traditionally supply the used-car market, he said, but leasing activity slowed to a crawl when the recession took hold, so fewer formerly leased vehicles are hitting the market now. At the same time, the federal Cash for Clunkers program that offered drivers incentives to trade in their old cars, removed nearly 700,000 used cars from the market.

Eric Gosch, co-CEO of Gosch Auto Group, which sells new and used vehicles, said new-car sales plummeted a few years ago, and that means fewer used cars on the market now. At the same time, American automakers have reduced production levels to match demand. According to the National Automobile Dealers Association, new-vehicle sales dropped from 16.1 million vehicles in 2007 to 13.2 million in 2008.

Gosch said he is working harder to bring in used-car inventory, buying more in the wholesale market and offering to buy customers' trade-ins whether or not they are buying a replacement vehicle. "Sometimes you just walk away from the auction just shaking your head," he said.

Carroll Lachnit, features editor for Edmunds.com, said supplies of new cars from Japanese carmakers could be down as much as 50 percent this summer as a result of the March tsunami and earthquake, and that could mean more consumers for the used-car market. And higher gasoline prices will prompt greater consumer interest in fuel-efficient cars, both new and used, she said.

When used-car prices may begin to ease is "anybody's guess," Lachnit said. In the meantime, buyers should do their research. "If you really need a car right now, I would just be realistic about the marketplace and shop smart."

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