Amid New Car Boom, Used Cars Are Gold - Mercedes Benz SLK Forum
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#1 Old 02-22-2013
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Amid New Car Boom, Used Cars Are Gold

good article:

A few weeks ago, Justin Severson put an ad on Craigslist to sell his 13-year old Honda, and within a few minutes an eager and unexpected buyer was on the phone—a local auto dealer named Doug Waikem.
Mr. Severson drove his Accord to the dealer's showroom two days later and picked up $5,200 in cash. The dealer "gave me a fair price and it was handled within a few days," said the 31-year-old Uniontown, Ohio, resident.
The transaction illustrates a trend rippling through the rebounding U.S. auto market: used cars are so scarce that retailers like Mr. Waikem are scrambling to find suitable vehicles—and paying top dollar when they do.
"I am spending more time now trying to buy cars than sell them," said Mr. Waikem, who has seven new-car franchises in Northeast Ohio. He parks delivery vans that advertise his purchases at high school sports events and uses a computer program which alerts him whenever local used-car postings appear on Craigslist.
The shortage of used cars stems from the deep plunge in new-car sales between 2008 and 2010, and the virtual disappearance of new-car leases during the financial crisis. As a result, three-year-old cars are now hard to find and even older models are holding their value.
Another factor is a change by the three Detroit U.S. auto makers. To keep factories humming, they once leased tens of thousands of new cars to rental car fleets and then moved them onto dealer lots as used models after a few months.
There are fewer of those vehicles because manufacturers cut excess production capacity in recent years. Cash-for-clunkers rebates also took many older vehicles off the road.
The scarcity has pushed up used car prices, often to the point that consumers who finance a purchase with subsidized interest rates can get brand new vehicles for about the same as a monthly payment required for a late-model used car.
A 2013 Toyota Corolla LE now sells for about $18,000 new and a 2010 model costs about $14,200. However, monthly payments would be about $300 for each, assuming the new-car buyer gets Toyota's 1.9% for 60 months rate and the used-car buyer pays a 5% or higher interest rate.
While new vehicle sales get a lot of attention because of their connection to auto makers, the used vehicle market is far larger. Last year, U.S. used vehicle sales rose 5% to 40.5 million. That compares with new-vehicle sales of 14.5 million, according to Manheim, a subsidiary of media company Cox Enterprises Inc. that runs used car auctions around the country.
In 2012, Manheim sold about 2.5 million fewer vehicles at auction than it did before the auto sales collapse. But the bottom is near, warned Sandy Schwartz, Manheim's president. He sees used car prices falling this year, and a healthier supply of late-model cars coming off leases by December.
"There is a going to be day coming soon when there a lot of cars are going to be dumped on the market," said Mr. Schwartz. "That is going to put a strain on new cars."
Melinda Zabritski, director of automotive credit at consumer credit rating firm Experian, said it is possible used car prices may climb to a point they compete with new cars. But, she says, even if that happens, "that is not going to last long. Now is a good time to trade in your used car if you have one."
High used-car values give buyers more equity on trade-ins and they also make the value equation better for getting a new car, which often has new features and lower financing rates or other incentives that used cars lack.
J.P. Paynter, a general manager in a group of luxury car dealerships in Carlsbad, Calif., said he buys cars from his own customers to help fill his inventory.
Nearly every car traded today has more than 100,000 miles on it, and finding decent used cars means cold-calling owners, even when they aren't thinking of selling.
"We keep track of our customers' payments, and equity, so when it gets to a point where I can say, 'hey, you can trade in your two or three-year-old car and get a new one for about the same payment' we reach out to them," he said.
National Automobile Dealers Association senior economist Paul Taylor expects new vehicle sales this year to rise by more than one million over 2012, to about 15.5 million cars and light trucks. Many people have held on to older cars and now simply have to buy new one.
Easier access to credit and the shortage of affordable used vehicles is boosted new-car demand, too, Mr. Taylor said.
Mr. Waikem, the Ohio dealer, said he is making more money on cars he buys directly from people than those he gets from wholesale auto auctions, and about 50% of the people who sell him used cars end up buying new vehicles from him.
He also uses a computer system to track the equity his customers have in the vehicles they bought new from one of his stores, but doesn't stop there. He also leases billboards near competing car dealerships offering to buy used vehicles.
"Right now, you turn on the news, it is all bad economic news except for auto sales and housing," he said. "It is a combination of some lowest interest rates in history, and the highest used car values in history."

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