Used cars have had an interesting ride since the Great Recession began in 2008. As consumers tightened their belts, they opted to buy used cars instead of new ones, or held onto the cars they had instead of trading them in.
As a result, new car sales took a major hit.
“They couldn’t give away new cars,” said Jack Anderson, used vehicle director at West Herr Auto Group.
“Even people who could afford new cars during the recession bought used cars, just because no one knew where the bottom was in the recession,” Anderson said. “If you weren’t one of the people who lost your job, you were affected mentally by the recession and chose to buy used instead of new.”
In 2008, West Herr sold more used cars than it ever had until that point in its history.
The sudden demand for used cars put them at a premium. Not only were more people looking for them, fewer people were giving them up.
As the supply dropped, prices of used cars increased, jumping 15 percent from January 2008 to December 2011, according to the NADA Used Car Guide.
That was great news for dealers, who can make a better profit on used cars than new ones. While a new car may sell for $100 above the invoice price, a used car typically sells for about $1,500 above trade-in value and can even bring in as much as $4,000 profit.
“Every used car stands on its own four tires,” said Jay Dean, general sales manager at Schmitt’s Audi Volkswagen in Bowmansville. “You can go to three different dealers, and everyone’s got the same new car, so it’s very easy for consumers to compare apples to apples. On the used car side, that’s not necessarily true.”
In the years leading up to the recession, new vehicle sales averaged 17 million cars per year, according to data from Ward’s Auto World, which tracks the automotive industry. In 2008, that number dropped to 13.2 million. In 2009, it bottomed out at 10.4 million.
The fact that fewer new cars being produced ensured that the supply of used cars would remain pinched for years to come, keeping demand – and prices – high.
Since most new cars are returned to the market as used vehicles after three years, it makes sense that used car inventories hit their lowest point in 2012.
But in August, new car sales rebounded to pre-recession levels, making double-digit gains and starting a positive trend that continued through most of the year. Despite lower-than-expected sales in December, 2013 new car sales finished 7.6 percent higher than the previous year with 15.6 million vehicles sold, making it the best year for U.S. auto sales since 2007.
Used car prices have already started to come down, and they will continue, experts predict.
“In 2014, used prices are expected to decrease, while inventory and selection increase,” said Joe Spina, a senior analyst for Edmunds.com. “Used car prices have been high but are adjusting to an increased level of supply.”
Auto factories are humming, ramping up production and competing among one another for newly confident shoppers.
Thanks to high trade-in values and low interest rates, dealers are offering a host of attractive incentives, such as zero percent financing, giant rebates and affordable lease deals.
“What that does is drive down the price of a new car, which then drives down the price of a late-model used car, because what people do is say, ‘Gee, for a couple thousand more I’ll just buy a brand new one,’ ” said Dean, of Schmitt’s Audi Volkswagen.
In 2014, new car sales are expected to continue rising for a fifth straight year – just the second time auto sales have done that since World War II.
The average vehicle chugging along the road today is 11.4 years old, according to market research firm Polk, and those vehicles will need to be replaced.
Auto makers are stocking vehicles with more options, such as GPS navigation, Bluetooth and satellite radio, at the same time customers are realizing they can get more car for their money because of incentive deals and the money they save on gas by buying a newer, more fuel-efficient model.