Lately, the used-car market has thrived as the new-car market has struggled. The problem for consumers is that used-vehicle demand has outstripped supply, sending prices skyward. It's not unusual for price tags to be up $3,000 in some product segments in the last five years.
And the classic "beater" – a high-mileage, $1,500 used car that can handily take you around town on your errands – is fast becoming a thing of the past, according to some auction houses.
"As new car sales have lagged in the 11-million or 12-million-units-a-year range, used car pricing has just gone up steadily," said Jay Adair, president of Copart Inc., an online vehicle auction company. "So we are at record used-car pricing right now."
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Used vehicles are more attractive to consumers than ever, he said. They've realized that two- or three-year-old vehicles are decent substitutes for new ones -- thanks to increases in vehicle quality and durability over time.
"With the economy the way it is, people are saying, 'Do I really need to buy a new product?'"
But the rise in used-vehicle prices is sure to complicate consumers' best-laid plans to spend less money. Consumers who are shopping for a used car through a financing program -- as opposed to buying with cash -- will find that lending rates are higher for used vehicles. With the higher prices for used cars and the higher prices paid for financing used vehicles, in some cases the actual out-of-pocket costs are equal to that of a new car.
The increased demand in used vehicles has been dramatic, according to Manheim Used Vehicle Value Index, compiled by the consulting arm of Manheim Auctions, a major dealer-only auction company. The index stood at 122 in November – the highest level since its inception in 1995. The index is based on data from the 5 million annual vehicle sales at the company's wholesale auctions, adjusted for mileage, model type and season of the year.
The net effect has been higher profits for dealers – especially if they can find the inventory – and heftier price tags for consumers, since dealers haven't had trouble passing on higher prices so far, Manheim Consulting said in its latest report.
The 122 figure represents an increase of nearly 6 percent over last year. And wholesale prices were still rising the first two weeks in December, according to a tweet from Manheim chief economist Tom Webb.
Prices for pickups, up nearly 8 percent in the last year, were muscling their way up the scale faster than most other segments. By contrast, wholesale prices for luxury cars were up just 1 percent.
Average Prices For Used Vehicles Much Higher
Between January 2005 and July 2010, the average price rose from about $15,000 to $18,000 for pickup trucks one- to five-years-old, and about $10,500 to $13,200 for cars in that age bracket, according to the National Automobile Dealers Association Used Car Guide.
Average prices for conventional SUVs rocketed upward from about $13,000 to $22,000 between January 2009 and July 2010.
Used vehicles on the market generally have more miles on them, too. "The average mileage on vehicles sold at auction has risen in every market segment over the past two years," Webb said in his latest report.
As might be expected, the best time for consumers to buy a used car would have been at the
height of the financial crisis in 2008. The Manheim index stood at a mere 98 points (two points below the baseline of 100) in December of that year. But that figure is little more than a footnote in the story since then.
The trend was well underway before the crisis hit, Adair said. After faltering momentarily during the meltdown, it has begun picking up speed. Auto analysts attribute this to a number of factors.
First of all, people aren't unloading many trade-ins onto dealerships since they aren't buying many new vehicles.
Cash For Clunkers Effect
Auction managers also blame the Cash for Clunkers program, which led to the scrapping of hundreds of thousands of used cars last year.
"There are now fewer cars at the low end of the market for dealers to purchase," said Fred Passatta, manager at Motor City Auto Auctions in Fraser, Mich. "Dealers haven't been able to carry as much inventory or do as much advertising as a result.
"Previously, we would have older cars in the $2,500-range, even $1,500, that they were good, drivable cars. Now you are looking at three grand for just a good-running vehicle, basic transportation."
New online market channels have increased used-car demand, Adair said. "There is absolutely no question that the online world has increased visibility, and visibility has increased demand."
But there is a ray of hope in the retail market statistics, according to Alec Gutierrez, chief analyst for vehicle valuation at Kelley Blue Book. "Just in the last month, we saw the (used vehicle transaction values) drop about two-and-a quarter percent," he said in early December.
Still, buying a used car will take greater foresight than in the past. To increase their odds of success, shoppers can try out different retail channels, such as online and real-time auctions, along with private owners and dealerships, the two more traditional options.
But Michael Royce, publisher of beatthecarsalesman.com and an AOL contributor, warns that emotions can come into play in some transactions. In private sales, owners may be attached to their cars and insist on a higher price than they are worth. And at real-time auctions, buyers can get carried away with the bidding.
One other complicating factor: Every used vehicle is different, with its own mileage and maintenance and repair history. So to get their money's worth, buyers need to be prepared when the right one comes along, Royce notes. They won't be able to find one like it at the next Toyota, Ford or Chevrolet dealership down the road.
As a result, he recommends lining up financing and doing research on any preferred models in advance. To speed up the buying process, the shopper can call up product information from a handheld or laptop right at the point of sale. And dealers, private sellers or auction houses may be willing to provide a vehicle history on the spot.
"When you buy a used car, you can't play around as much," Royce said. "You have to be a little faster on the trigger."
Otherwise, you could soon see the object of your desire rolling down the street without you – even if you were ready to pay a higher-than-ever price for it.