Used-car prices on the rise
More people feel they can no longer delay replacing their old vehicles, driving up demand.
This post comes from Jeff Brown at partner site MainStreet.
In the market for a used car? Kelley Blue Book urges you to buy sooner rather than later, as prices are rising.
Of course, it doesn't pay to be strong-armed into it, especially not if your current vehicle still has some life left in it. And it will make sense to consider your used-car choice carefully, as certain models command a premium.
KBB, a leading source of car-value data, says used-car prices are likely to rise by 3% to 5% in the first quarter of 2012, and even more in the second quarter. "Non-luxury cars and crossovers increased between $50 and $100 in the past week alone, and they will likely continue to rise in the weeks and months ahead," KBB reported last week.
Between Jan. 6 and Jan. 13, the average trade-in value of a 2009-2011 midsized car increased $107, from $12,096 to $12,203, or 0.9%. Most other types of cars that age gained 0.5% to 0.6% that week. A 5% increase in the coming months would raise the price of a $12,000 car to $12,600 -- and that's serious money for budget-conscious Americans.
Credit goes to unusual market conditions. Supply has been tightened by a slowdown in lease returns, a key source of used vehicles, while at the same time the average age of cars on the road is going up as drivers postpone purchases in the weak economy. Now more people feel they can delay no longer, driving up demand. Post continues below.
Careful shopping is especially important now, as redesigns have led certain 2011 models to trade at a premium, KBB says. The 2011 version of the Chevrolet Cruze and Cobalt go for $13,400, a 43% premium compared with the price of the 2010 models with older designs. At $15,700, the 2011 Kia Optima trades for nearly 52% more than the 2010 model.
These premiums far exceed the higher price typically expected of a vehicle that is one year younger. The 2011 Toyota Corolla, for instance, goes for $12,225, just 15.6% more than the price of a 2010 model, which is virtually the same except for age.
"This type of premium is typical for vehicles that have recently undergone a major redesign, especially when the outgoing generation was an underperformer in its segment," KBB says.
While drivers who really need to replace their cars as soon as possible may be wise to get going to beat the expected price increases, others may do better by waiting.
Auto loan rates are fairly low, with many used-car loans charging only 3% to 4%, according to the BankingMyWay rate search tool. Still, at 4%, a $12,000 loan for 36 months would cost $354 a month. If you own your current car free and clear and can delay your purchase by a few months, the savings on payments could easily justify paying a bit more for your next vehicle.
More on MainStreet and MSN Money:
When you go to trade your chariot in with printouts in hand, from Kelly Blue Book, Nada and Edmunds, each specifying trade-in or wholesale price, the dealer will try to lowball you anyway. See, he has another piece of information we consumers can’t easily access. It’s called Auction prices. The dealer wants to stay as close to the auction price as he can to minimize his loss if your car goes to auction instead of on his used car lot – or doesn’t sell. If the dealer keeps and sells your car, of course he is going to ask retail from the next buyer. Dealers probably make more money on used cards, getting them for lowball prices and selling it for retail prices. That spread can be up to a couple grand.
As all the experts say, do your homework, know before hand what you will take for your used car and walk if the dealer offers a lowball figure. And keep the used car transaction separate from the new purchase.
I'm sure this has NOTHING to do with the FACT the NEW cars/trucks cost what a Mercedes/BMW used to cost 10 years ago!
Nor, does this have ANYTHING to do with the "Cash for Clunkers" debacle that DESTROYED perfectly good vehicles just to "spur" new car purchases. BTW, I haven't seen one news story about the dealerships that went out of business because the government was too SLOW in paying the $$$$ for the "clunkers". (Alas, I could NOT AFFORD a new car, and the loss of those "clunkers" that still had thousands of miles left in them has caused the remaining junk to be "worth" much more than they should be.)
This is what happens when the government gets involved in the economy. They have no foresight. The scarcrow for Wizard of Oz had more of a brain . . .
I love my 1994 Chevy. It's did cost me about $600 in repairs, over the course of a WHOLE YEAR. Some people pay that much EVERY MONTH in payments and insurance. Runs and drives like new, 'cause I take care of my cars. Why in the world would I want to buy a NEW ONE?
GO AHEAD AND GET THOSE KIAS ETC. THE PARTS YOU WILL NEED SOONER THAN LATER ARE EXPENSIVE AS HECK.
ALSO DONT GET HIT IN ONE OF THOSE CAR COFFINS.
Cash for Clunkers has almost nothing to do with higher prices on less than 7 year old used vehicles. Most of those trade-ins were more than 10 years old, and consisted of full-sized trucks and SUV's. It mostly affected the vehicles in the $3000-8000 retail range. The reduction of trade-ins and lease returns of vehicles less than 5 years old is what forcing the prices higher- and the fact that for about 10 years consumers were turning over their vehicles almost as soon as they finished paying, or almost finished paying off their last auto loan. Leasing died when low to zero percent financing, and losses suffered by banks on lower than expected residual values hammered their portfolio, and changed leasing needs on vehicles with less than a $30k price tag. Also, 2008-09 saw very little new vehicle production, ergo 4 years later, very little used product on the market.
Kelly Blue Book now is owned by Auto Trader, which is trying to get into the used car auction business. Is this a potential conflict of interest? I do know that when a customer tells me what KBB says their trade-in is worth, I ask them if KBB was ready to write a check for it.
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