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Time Right To Buy a Used Car

Supply and Stagnant Prices Benefit Used Car Buyers


Time Right To Buy a Used Car

Don't pay list price for a used truck or SUV. Dealers lots are full of them.

Photo © Keith Griffin

It's a buyer's market in the used car world with an ever-increasing supply of used cars. Pundits who say there is a shortage of used cars have not been reading the tea leaves that all indicate others.

Here at UsedCars.About.com we use CNW Market Research for our tea leaves. The respected used and new car sales analyst is reporting that "used prices are stagnant; with little relief in sight."

Know what that means? Used car dealers are going to be pushing real hard when it comes time for the President's Day sales that abound in February. Live in a snowy area? Pray for snow that weekend and the prices will probably get even better.

Art Spinella, the head of CNW, says in his monthly report, "Used vehicle prices remain stagnant at both retail and wholesale. In January thus far, transaction prices are down 2.73 percent for franchised dealers compared to January of last year and flat compared to December."

Franchised dealers are the used car lots that are affiliated with an OEM like Dodge, Chevrolet or Honda. They're name explains what they are because most new car dealerships are sold as franchises. (Manufacturers can't own new car dealerships in most states if memory serves correctly.)

It's a buyers' market right now. Dealers can't charge as much as they could a year ago because there is more supply of used vehicles.

Here's where things get really interesting. Used cars have become huge profit centers for franchised dealers. Certified pre-owned sales helped keep the lights on during the recession. Dealers have made investments to promote the used car lots. It's no longer acceptable to have a trailer off to the side.

With investments comes a need to repay investors (or banks for lines of credit and loans). Franchised dealers can't afford to have used cars sitting unsold on their lots because they need the money. It's an "inside baseball" term but dealers want a low days of supply number. But that figure has been going up. There is now an almost 50 day supply of used cars (including trucks and cars) in the market. That means customers have more selections and more time to ponder before buying.

About 18 months ago it was the seller who could sweat the buyer with lines like, "I can't guarantee that car's going to be here tomorrow." Now it's the customer who can say with confidence, "I think I'll come back next week." When the customer returns, at least when the smart customer returns, it should be with an offer to pay even less off the sticker price.

Then there are the independent used car sellers. These are the folks not affiliated with new car dealerships. According to CNW, year over year comparisons aren't good. The analyst reports, "For independents, the story is a bit more depressing. Transaction prices are off 5.7 percent vs. a year ago and up only slightly - 0.88 percent - compared to December."

Month-over-month comparisons aren't really that meaningful. You need to look back to the previous year when market conditions are the same. Plus, people really slack off on buying used cars in December because of the holidays. You might see a slight uptick because of end-of-year sales.

Really use the days of supply to your advantage. Find a vehicle you like and then see how long it has been sitting on the lot. You can accomplish this by ordering a CarFax report. See when the dealer acquired the vehicle. Is it more than 50 days? You've got the competitive edge when it comes to negotiating.

Say, for example, the car has a dealer value of $10,000. Past the 50-day mark, you should be able to offer $9500. I think 5% is a reasonable amount - and the dealer benefits. The car is no longer sitting on their lot and costing them money in financing. (Dealers pay for cars until they sell them through a product called "floor plan financing.")

Has the car been sitting on the lot for more than 75 days? Mark the price down by 10% of the used car value. Remember, you're setting the value based on a dealer price. Walk away from the deal. Leave your phone number, though. Don't be surprised if the dealership follows up with a phone call a week later offering to accept your deal. It's a great time to be a used car buyer. The consumer really has the upper hand in the marketplace.

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