High used-car prices make it ideal time to sell, but not to buy
It’s a great time to sell a used car. But if you’re in the market for a new car, expect to shell out more dough.
Overall average prices for new cars increased $150 in the first week of May from the previous week and are up $350 since the March earthquake in Japan caused production problems, according to Edmunds.com.
The selling prices for used cars are at a 16-year high, in part because people are holding on to their vehicles longer, creating a tight supply of used cars and trucks.
For new car shoppers, the biggest price increases were reported on Japanese cars, up $250 from the last week in April, Edmunds.com reports. Across all brands, prices of new mid-sized cars rose about $220, or 0.9 percent, according to the consumer website. It said compact cars are up about $160 per vehicle, or 0.8 percent; and full-sized cars are about $230, or 0.7 percent, higher.
Among popular new vehicle models showing notable price increases were the Honda Accord, up roughly $480; the Honda CRV, up about $300; the Toyota Camry, up about $120; the Ford Fusion, up about $150 and the Chevrolet Malibu, up about $50, Edmunds.com said.
On the used vehicle front, dealers are paying an average of $11,660 for a used car or truck, up almost 30 percent since December 2008.
“You’re not going to find a situation like this very often,” says Jonathan Banks, executive auto analyst for the National Automobile Dealers Association used car pricing guide.
The run-up in prices for used cars has been so dramatic that it almost doesn’t make sense to buy them anymore, says David Whiston, an auto analyst for Chicago-based Morningstar Inc. That’s probably a good indication that prices are at or near a peak.
“For just a little bit more I can buy a brand-new car,” he says. “There’s a tipping point. I think we are getting very close to seeing that.”
Take the Accord, for example. A dealer would sell a 2008 four-cylinder Accord LX sedan in good condition with about 45,000 miles on it for $16,175. With no down payment and a loan at 5 percent interest, it would cost $373 a month to pay off the Accord in four years. But Honda is offering a three-year lease on a new 2011 Accord for just $250 a month. The company will even make the first payment. You still have to pay $600 up front and 15 cents for each mile you drive over 12,000 a year.
In Greensboro, N.C., Jeremy Barnes and his wife are expecting their first child, so they decided to replace a white 2007 Accord with a bigger, new vehicle. He wasn’t sure what they could get for the Accord when he checked prices on the Kelley Blue Book website.
“I was pleasantly surprised,” says Barnes, 30, a heating and air conditioning equipment salesman.
He’s asking $15,200 for the car, which is in good shape and has 47,000 miles on it. While waiting for a buyer, the couple are looking at vehicles like the Jeep Grand Cherokee.
The rise in used-car prices is a byproduct of the recession. The average car on the road now is 10.6 years old, according to the Polk research firm. That’s up from 9.8 years in the middle of 2007, a few months before the recession struck and people began to rethink major purchases.
Another source of used cars got choked off when credit tightened during the 2008 financial crisis and car companies cut back on leasing new ones. Companies sell leased cars as used when leases expire.
There are signs that used-car prices will come down. Leasing was 21 percent of U.S. sales in February, which was up from 11 percent in 2009, according to Experian Automotive. That should bring more used cars onto the market as three-year leases end. Banks and auto company finance arms have also loosened up credit for people with poorer credit ratings, meaning more buyers can get a loan for a new car.
This story posted by LeaseTrader.com, the automotive service company that lets people transfer out of their Car Leases early. If you're looking to swap a lease or transfer out of your car lease, please visit www.leasetrader.com