It turns out the best deal on that shiny new car may be on one that isn’t so shiny.
As a CBSNews.com article pointed out earlier this month, used cars may be the best opportunity for a bargain that consumers have seen for years.1
According to information from wholesale auction firm Manheim that was cited in the story, US used-car prices fell five straight months through September after a long period of rising through the spring.
That includes a 2% decline in the third quarter compared with a year earlier. “The last quarter of 2014 will be a great time to get a good deal on a used car,”
AutoTrader.com senior analyst Michelle Krebs told CBSNews.com.
The lower prices are due to healthier new-car sales as the economy has recovered.
With auto sales and leases slumping amid the recession in 2008 and 2009, fewer trade-ins and lease returns were available in recent years. Now, motorists who took out a typical three-year lease in 2011 are turning in those cars, boosting used-car inventory and driving down prices.
“During the recession it almost cost as much to get a used car as a new car, but now the market is going back to historical norms,” said Larry Dominique, president of research firm ALG, which sets future used-car values for leases. That resulted in a trade-off between used cars and new cars because manufacturers and dealers were discounting new-car prices and offering low interest rate deals.
Meanwhile, recent-model used versions of the same car were selling at high prices with higher interest rates on loans.
Now, used-car inventory has risen for the past three straight months — a report by the Detroit News said it was up 1.5% in September compared to the same month a year ago. About 9.76 million used cars were available in the US in September, compared to about 9.62 million last September.2
The number of certified pre-owned vehicles — those inspected and deemed worthy to resell by manufacturers — are on the rise, too, according to the report.
AutoTrader.com said the supply of those has increased 6% in the past six months.
The rosier picture for used-car sales may also be translating to the stocks poised to benefit from a boost in used-car sales. The Used-Car Tune-up motif has gained 7.1% in the past month. In that same time, the S&P 500 is down 0.7%.
In 2014, the motif is up 10.4%; the S&P 500 has increased 7.9%.
While CBSNews.com said that analysts predict supply levels are still years away from pre-recession numbers, they say the used-car market should continue to rebound through the remainder of the year and into 2015.
That could mean the road is just beginning for revived used-car sales – and an opportunity for investors to get their portfolios into gear.
1Jerry Edgerton, “Used cars are a good deal again,” cbsnews.com, Oct. 17, 2014, http://www.cbsnews.com/news/why-used-cars-are-a-good-deal-again/, (accessed Oct. 27, 2014).
2Michael Martinez, “Used-car prices fall as ending leases fill dealer lots,” detroitnews.com, Oct. 6, 2014, http://www.detroitnews.com/story/business/autos/2014/10/06/used-car-market-heats/16840109/, (accessed Oct. 27, 2014).