Although new car sales charged back last year, tailwinds of the recession are still twisting the market for used vehicles.
Lower numbers of sales and leases in recent years have squeezed supplies of late-model used cars, pushing dealers to new lengths to find inventory and likely driving prices higher as 2012 rolls forward.
“I expect the prices to probably continue to rise throughout the year and definitely through the second quarter,” said Nick Ort, used car sales manager for Ed Schmidt Auto Group. “Our profit margin is going to do the opposite. We’re going to have to pay top dollar to buy them and there’s a limit to what you can sell.”
The team at Ed Schmidt has taken to Craigslist, eBay, and newspaper classified ads to find reasonably priced cars for its lots.
“I don’t think a lot of dealers are doing that at this point, but they’re going to find out they have to,” Mr. Ort said.
One of the biggest hurdles is the lack of cars coming off lease.
The National Automobile Dealers Association expects a 22 percent drop in the supply of cars returned from leases this year, which follows a 17 percent decrease last year.
“That’s the bulk of your one-to-three-year-old vehicles. They’re the vehicles that are going to be in the best condition, have the fewest miles, and ultimately be the vehicles consumers are most interested in,” said Alec Gutierrez, a senior market analyst with Kelley Blue Book.
Kelley, which tracks used car values, predicts a 3 to 5 percent increase in the first quarter of this year, and perhaps an additional 2 to 3 percent increase in the second quarter. But Mr. Gutierrez doesn’t expect much of a jump through January, and says those thinking of buying soon might want to consider buying now.
Kelley is already seeing less depreciation than usual for 2011 model year cars. The average one-year-old vehicle with 12,000 to 15,000 miles on the odometer is retaining 60 to 70 percent of its original sale price — up from a normal average of 50 to 60 percent, Mr. Gutierrez said.
The high prices are compounded by a driving public that’s keeping its aging jalopies on the road longer than ever.
Figures released Tuesday by automotive research firm Polk show the average age of cars and light trucks currently registered in the United States has increased to a record 10.8 years.
“People are hanging onto them longer and fixing them,” said Joe Mehling, general manager at Dave White Chevrolet. “If we get a trade-in now it could be 10 years old and have 150,000 miles, rather than three years and have 40,000 miles.”
Dave White has also been looking to private party sellers to make up for the lack of inventory available from trade-ins and dealer auctions. Mr. Mehling just returned from a buying trip to Florida.
“We’ll go wherever we have to, virtually through the Internet or in person,” he said.
Analysts expect that as the economy slowly improves some of the people who have put off buying a new vehicle will do so this year, keeping demand high. That has some wondering how long smaller dealers can hold on.
“You’re going to get some of the smaller dealers that don’t do the new car volume, and some of the independents that are going to end up closing their doors,” Mr. Ort said.
All of this is a positive for current owners, whose trade-in values are higher than ever.
The dealers association says the average trade-in value of a three-year old car is up 8 percent this January from last, a trend its analysts expect to see throughout the year.
Contact Tyrel Linkhorn at: tlinkhorn@theblade.com or 419-724-6134.