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Used Car Sales Up But Prices Are Down

Trend Could Change as Supply Starts to Shrink

By

Used Car Sales Up But Prices Are Down

Used cars are in demand.

It looks like good news for consumers that used car sales were up in May 2014 and prices were down but supply could be shrinking, which leads to higher prices.

According to CNW Market Research, "If the opening 15 days of the month are any indication, used sales should hit another solid increase of 1.5 percent to 4.5 million units. The stable finance market, accepting wider and lower score consumers, has opened both franchised and independent dealers to a wealth of new shoppers who in the previous few years found it hard to get financing and relied on the casual market where they purchased older vehicles."

CNW demonstrates just how much credit has eased for consumers. In May 2009 the average used car FICO score (basically your credit score) was above 700. Credit scores above 700 are considered fairly strong. Last month, the average FICO score was down to 579.68.

That, for example, would put you in bad stead with the Federal Housing Administration. It says at its website, "New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA's 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%. This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well."

Private Party sales are on track to lose in May, down 3.7 percent vs. a year ago.

This run on used vehicles has shrunk the days’ supply by 1.4 percent vs. a year ago and even though auction prices are not rebounding as one might expect, part of the reason remains a mismatched consumer-demand vs. inventory condition.

Dealers are seeing good news on the retail front when it comes to used cars. According to CNW, "On the very bright side, prices at retail have increased vs. April topping $11,400 compared to $11,372 in April. Not much, but a move worthy of note. Independent dealers weren’t so lucky and saw prices fall 1.6 percent vs. April.

The CNW monthly report also says, "Wholesale prices remained at high levels in April, reflecting scarcity in supply and abundance of demand particularly for late-model, CPO-eligible used vehicles, and more specifically for off-rental program and risk units. Continued growth in off-lease volumes is expected to help correct this late model supply-demand imbalance and cause prices to moderate going forward."

CPO-eligible refers to certified pre-owned vehicles and they continue to be the 800-lb. gorilla of used car sales. Certified pre-owned used cars are profitable for new car sellers and some would say they helped keep the lights on during the recent recession.

"According to ADESA Analytical Services’ monthly analysis of Wholesale Used Vehicle Prices by Vehicle Model Class1, wholesale used vehicle prices in April [2014] averaged $10,468 -- up 0.3% compared to March, and up 3.7% relative to April 2013. Midsize and mini SUVs had the strongest month-over-month and year-over-year price increases," according to CNW.

It added, "Prices for used vehicles remarketed by manufacturers were up 0.8% month-over-month and up 8.1% year-over-year, adding to a string of strong months pricing-wise for diminished quantities of factory units. Prices for fleet/lease consignors were up 0.5% sequentially and up 3.5% annually, as off-rental risk supplies remain tight."

It's an interesting trend that rental cars are becoming popular again as a source of used cars. Well, they have always been popular. What has changed is rental cars are getting much older before they are sold. It's no longer surprising to see rental cars with 40,000 miles on them. Their appeal as desirable used cars in the past was they were decontented models with relatively low mileage. Now they still are base models but with higher mileage. Used rental cars can be a bargain but make sure you do your homework before buying one.

CNW also reports, "Dealer consignors saw a 0.7% average price increase versus March, and a 3.2% uptick versus April 2013. Based on data from CNW Research, retail used vehicle sales in April were up 28.2% month-over-month and 4.3% year-over-year. Sales of certified pre-owned (CPO) vehicles were down 6.5% from March’s all-time high, but up 9.5% from the prior year, based on figures from Autodata."

That last sentence indicates the supply of certified pre-owned cars is going to continue to be difficult when it comes to negotiating good prices. You might want to consider buying new in some cases.

 

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