Used cars, new prices

When the American housing market collapsed in 2008, another sector of the economy took off: used cars. In the three years since the financial crisis hit, the average price of a late-model used vehicle in the U.S. has grown by over 50 per cent, from US$15,000 in 2008 to over US$23,000 this past July, according to the Kelley Blue Book, an industry indicator.

Even as the economic recovery slowed this year, used cars continued to boom. Sale volumes and dealer profitability both climbed in the first half of 2011, say analysts at Manheim, an auction house. The company’s Used Vehicle Value Index hit a record high over that stretch. Prices haven’t soared for all models, though. Among older vehicles—those between five and 10 years old—there are still bargains to be found, says Dennis DesRosiers, an auto sector analyst. But “once you get into the Mercedes and the BMWs, the prices are just outrageous.” Because of the better financing often available for new cars, some consumers are actually paying more every month today for a high-end used vehicle than they would for a similar new one, DesRosiers says.

The biggest reason for the boom: supply and demand. When the financial crisis hit, credit dried up and new car sales collapsed. Between 2005 and 2007, the U.S. averaged about 15 million new cars sold every year. By 2009, that number had fallen to about 10.5 million. At the same time, many banks stopped offering lease support. Fewer new cars sold three years ago means fewer used cars available today. And with so little supply, “it’s getting harder and harder to find a bargain,” says Alec Gutierrez, the manager of vehicle valuation for the Kelley Blue Book.

The shortage even has some U.S. dealers looking to Canada for bargains, says Brad Hart, the vice-president of operations for Manheim Canada. But with the Canadian dollar trading over US$1.02, and the Canadian market itself not flush with used cars, DesRosiers does not expect American buyers to play a significant role here.

DesRosiers does think used car prices will even out within the next year or so. But for now, “if you’re looking for a used car,” he says, “look pre-2008.”