The used car industry had a good 2011 and it's looking to have an even better 2012 based on predictions by an industry expert who sees strong sales numbers continuing and strong prices ongoing in certain segments like compact cars.
Jesse Toprak, vice president of industry trends and analysis at TrueCar.com, said 2011 will end with a 10% increase in used car sales, which would put used vehicles at about 40.3 million give or take. That takes into consideration all used car sales including franchised dealerships, independent dealers, and private sales.
The used car industry is matching the new car industry in terms of percentage sales growth. Approximately 3.3 used cars are sold for every new car sold based on industry statistics.
Toprak said 2012 would continue to see an overall shortage of supply but more specific to newer used cars, which sounds like an oxymoron, but actually references cars that are one to three years old. Those are typically the new cars that come in off lease, rental cars, and program cars like leases for car company employees.
No Used Car Factory
There's obviously a finite amount of those cars that will be available through 2012 because of the low amount sold in 2009 (10.4 million) and 2010 (11.5 million). (As Toprak puts it, "The factory that makes used cars is new car sales.") Leasing was down to historically low levels of 11 to 12% of the new car market two years because of credit tightening that made it almost impossible to get approved for a lease. That is continuing to dry up the available pool of newer used cars.
The jump in sales from 2009 to 2010 bodes well for future used car sales. "There is going to be less and less pressure," Toprak said.
The "sweet spot" for 2012 used car sales, Toprak predicts, is going to be in the $7000 to $12,000 because that is the price people who need transportation are willing to pay if they cannot afford new cars. The key word is "need" and doesn't target people who want to buy new transportation.
Used Impacts New
The used car market is going to continue to impact the new car market in 2012 as long as consumer confidence doesn't rise. Toprak said in a down economy consumers are veering towards used cars, which leads to higher prices for used cars. "There is going to be pricing pressure on recent model used cars for the next couple years," he said during a phone interview with About.com.
The new car market is also going to impact the used car market by hording the supply of newer used cars. Franchised dealers are going to want as many of those as possible to sell on their own lots. Dealers used to shy away from cheap used cars, Toprak pointed out, but now realize they can be an important aspect of a profitable used car center. Used car sales helped many franchise dealers keep their doors open in 2009 and 2010.
The reason franchise dealers can now go after these older used cars is dependability. Ten years ago a five-year old car with 60,000 miles could be a risk to a dealer's reputation if mechanical problems knocked it out commission. New cars have become so dependable in the last five years (witness the rise of certified pre-owned used cars) that franchise dealers can sell older used cars. "There's less risk to the reputation of the dealership," Toprak said.
Consider New – Gasp!
It runs opposite to what this particular website is all about but sometimes consumers should buy a new car. It might end up being cheaper in the long run than purchasing a similarly priced used car. Financing can be lower, incentives can be offered, and other things come into play. "You have to look at the entire cost of ownership," said Toprak. "The purchase price is only one part of the puzzle."
For newer model used cars, you can consult Edmund.com's True Cost to Own calculator. It will go back to 2006 for most popular models and help you determine the five year cost of ownership for the used car you are seeking to buy.
Consumers who pay more for a used car than an equivalent new car, which has happened in some instances, did so because they didn't do their homework, Toprak admonished. "You should never pay more for a used car than you would a new car," he said, citing examples of people paying more for a used Prius than a new one because the latter were not available.
