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Used Car Prices Continue To Drop

Industry Analysts Look at Price Drops up to 3.5%


Used Car Prices Continue To Drop

Not all used car lots are alike. Sometimes dealers sublet space on their lot to other sellers. The used car you are buying may have nothing to to with the used car lot where it is being sold.

(C) Getty Images

Remember how the old radio DJs used to say, "The hits just keep coming"? Well, the used car business is now saying "The dips just keep on coming." The dips in this case are used car prices and smart consumers are going to take advantage. According to an article at AutoRemarketing.com" used car prices are expected to drop 3.5% in the coming months. Smart consumers will take advantage of that information.

Alec Gutierrez, KBB's senior market analyst of automotive insight, "based his projection on how wholesale supply is improving at auction - albeit not significantly," according to the article. It seems part of the problem is dealers are holding onto trade-ins instead of shipping them out to auction.

That's the first tidbit that consumers should be aware of - used cars that dealers take in on trade are more profitable than those that have to be bought at auction. Dealers have a lot more play on the profit margin with these cars, which affords consumers more opportunities to get bargains.

How do you tell if a dealer bought a car from trade-in? Well, as I point out in my article, "Top 10 Questions to ask a Dealer," the first thing a consumer has to do is, wait for it, ask. Come right out and ask the dealer how the car was acquired. A disreputable dealer could always lie but the fib would eventually be disclosed when a vehicle history report is run. (Yes, you always run a vehicle history report regardless of what the dealer tells you.)

Also, it's important to note that it's what is called franchised dealers take in the majority of trade-ins. You're less likely to find trade-ins at independent dealerships.

You may, however, find some at places like CarMax, which buys used cars directly from consumers, even if they are not buying a used car from CarMax. Independent dealers will get trade-ins, of course, but the frequency is going to be less. Also, the cars might tend to be older, which means there is less opportunity for savings from the dealer.

One place to avoid buying a trade-in is at a Buy Here, Pay Here dealership. The first reason is consumers used these dealerships because they have financial problems. Typically, if you own a car that is drivable, you're not going to trade it in to a Buy Here, Pay Here dealer.

The second is these used cars are more like to have been repossessed than actually traded in. The Buy Here, Pay Here dealers have customers who typically have shaky financial situations. The BHPH dealers have to install tracking devices in the vehicles being financed so they can be tracked at all times.

So, where can one expect to see deals and not see deals in used cars? According to the National Automotive Dealers Association Used Car Guide, the big reductions are going to come in the compact segment (3.7%) and the midsize car segment (4.4%). Both of those became white hot when gas prices skyrocketed. Now that some sense of normalcy has returned to fuel prices (sense of normalcy being a relative term).

Of course, that means another segment is probably going to be affected thanks to the drop in compact and midsize cars. That would be large pickups and SUVs. Consumers have relatively short memories. They quickly forget the pain of filling up at the pump. (And, yes, this writer is guilty as charged.) According to NADA Used Car Guides, prices for those have dropped "a comparatively mild" 1.8%.

Strange as it may seem, it's the global market that's also affecting used car prices. As the article points out, "Looking further afield, when the expiring Bush-era tax cuts and automatic reductions in government spending set to hit at the end of the year are placed alongside recent economic data, Europe's persistent financial troubles, and slower growth in other global economies (particularly China), it's likely that employment and consumer confidence will remain under pressure near-term."

Of course, if your confidence as a consumer is high right now, you're going to able to get some good deals on used cars. Just remember - it's still a consumer's market, especially if you're smart and jump into the falling compact and midsize price segments. Gas prices might suddenly tick up again and by buying now you will be in control of the situation.

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