The Federal Reserve Board is out with its monthly "Beige Book" which looks at various economic factors in its districts around the country. The information is helpful to used car buyers and sellers because it's a good predictor of how used car sales have been and will be in the coming months.
Used car sellers should use the to judge if now is the right time to be selling a used car in their part of the country. They can set their prices based on conditions. A more robust economy with, say lots of job creation and good credit, could allow a seller to be more aggressive in setting prices. A less robust economy could also indicate now may not be the best time to be in the used car market.
On the other hand, buyers with good credit can reasonably expect to pay better prices for used cars in regions that are experiencing economic difficulty. More sellers may find themselves in a position of having to sell during difficult times. Unfortunately, that sounds mercenary because sellers are taking advantage of buyers in adverse situations. However, it's a fact of life that it is always easier to negotiate prices from a position of strength.Highlights of the Report
• Automobile sales varied by District, with Cleveland, St. Louis, Minneapolis, and San Francisco indicating strength. Sales of both new and used vehicles in the San Francisco District were reported as running well above year-ago levels. Car sales were strong in Atlanta, although a bit less robust than earlier in the year. Richmond car sales were mixed. New York contacts said sales had flattened, and sales held steady in Kansas City.
• In contrast, auto sales slowed in Philadelphia and new vehicle sales fell at dealerships contacted by Chicago and Dallas. Sales of used vehicles were also mixed. Used car sales remained robust in New York and rose in Cleveland, with Cleveland District used car inventories remaining tight; in St. Louis, a majority of dealerships noted that used car sales had decreased relative to new car purchases, and in Minneapolis, used car sales softened.
• Credit standards and credit quality were somewhat improved, on net, since the last report. Chicago, St. Louis, and Kansas City noted that credit standards on most types of loans were unchanged, and Dallas cited a loosening of credit standards, which contributed to very competitive loan pricing. Atlanta cited contacts who reported that underwriting standards had become more restrictive and burdensome since its last report, both in terms of credit scores and information requests.
• With respect to loan quality, New York reported that delinquency rates increased in the consumer and commercial and industrial segments but held steady in the residential and commercial mortgage segments. Philadelphia contacts cited moderate improvement. Cleveland and Richmond noted improvements in delinquency rates across consumer and business loan categories. Richmond added, however, that some contacts were concerned that banks were increasing their risk exposure by making longer-term loans in an effort to get higher yields. Kansas City and San Francisco also mentioned moderate improvement in loan quality.
(Editor's note: Loan quality across all segments is important to consumers because it could point to loan tightening, which leads to difficulty in getting used car loans and higher interest rates. Loan tightening decimated the new car business a few years ago when it became difficult to get leasing credit.)
• In Cleveland, purchases of used vehicles rose slightly, though inventories are still tight. Leasing continued to grow in popularity, which should help to replenish the used-vehicle inventory by mid-2013. Bank credit was more readily available as is captive financing. Hiring for sales and service positions is slow. We heard reports about dealers partnering with technical colleges to train people for all facets of dealership work.
• Used car loan demand was weak in the Dallas District, although first mortgage and energy-related lending increased. San Francisco cited weak-to-moderate business loan demand, but consumer lending expanded further with the help of auto loans and home mortgage refinancing; however, San Francisco noted that lending activity as a whole was unchanged. Most remaining Districts, including Philadelphia, Cleveland, Atlanta, and Kansas City reported moderate increases in total loan demand.
• Auto dealers in upstate New York report some flattening out in sales in October, though used car sales reportedly remain fairly robust. There has also been some softening in business at dealers' service departments. Wholesale and retail credit conditions remain favorable.
• In St. Louis, Twenty-four percent of the car dealers noted that new car sales had increased relative to used car sales, while 6 percent reported the opposite. The sales outlook through the end of the year was mostly optimistic: 64 percent of the car dealers expect sales to increase over 2011 levels, while 14 percent expect sales to decrease and 22 percent expect sales to be similar to last year's levels.As always, the Beige Book report is just a snapshot in time but the information could prove to be useful. Consider it another chip in your bargaining tool belt when it comes time to buy or sell a used car.