Used car prices bounce back slightly in January, February

Significant belt-tightening by those in the car-buying market is pushing prices upward for used vehicles even as millions of new vehicles sit on dealer lots unsold.

Prices on pre-owned automobiles have increased significantly in the past two months, according to Mannheim Consulting, a provider of used vehicle services.  February’s rise was 3.7%, which came on the heels of a 3.8% increase in January.

Some analysts have suggested that the rapid rise in wholesale used vehicle pricing is a precursor to an improvement in new vehicle sales and might also be a precursor to a recovery in the overall economy. More likely, the turnaround in wholesale used vehicle values is a necessary, but insufficient, condition for a better new vehicle market. That’s especially true given that the rise in vehicle auction pricing has been driven largely by a reduction in the number of  used cars coming into the market. New vehicle sales have declined by about 610,000 units in the first two months of 2009. Assuming a normal 60% trade-in rate to the selling dealer, that means 366,000 fewer units of potential used-vehicle inventory.

While used vehicle sales have begun to climb slightly, forecasters continue to predict lower new car sales for 2009. Interestingly, many dealers have seen potential new car buyers opting for used vehicles instead. And according to Mannheim, many of these clients could have afforded a new vehicle if they wanted one. This is evidenced by their large down payments and their acceptance of shorter loan periods, which bring the monthly payment on a used vehicle to within range of a new car payment.

Despite the price increases for the past two months, only compact cars and higher-end luxury cars are up over the past year. Prices for entry-level luxury cars are down more than the overall car market, while compact pickups and vans have been the two weakest segments during the past year.

Source: Mannheim Consulting