Untitled
From The Detroit News Saturday January 25 2025:
Is now a good time to buy a used car? Here’s what’s happening on dealership lots
Used-car inventory is expected to be tight this year thanks to lower production amid the COVID-19 pandemic, but increasing incentives on new vehicles should help moderate prices, according to experts.
The annual used-vehicle market is about double the size of the new-car market. Used pricing over the past few years increased because of constrained new-car supply when pandemic-induced shutdowns and a global microchip shortage limited vehicle production. Higher interest rates didn’t help. Now, price tags on used cars are easing slightly with inventories up and automakers increasing incentives, but limited manufacturing in years past continues to restrict supply and keep prices elevated for consumers.
“Cars at the auction are sky high,” said Jim Seavitt, owner of Village Ford in Dearborn. “People have just been holding off. It’s been very slow. Affordability even in used cars is high.”
Amy Shumoski, 46, of Ardmore, Pennsylvania, said she felt fortunate to find her 2024 Ford Bronco Sport. Her son had grown 2 inches at college and couldn’t fit comfortably in her tiny Fiat anymore. A camper, she liked the towing capacity on the Bronco Sport, but a new vehicle was out of her price range.
She noted there weren’t too many used vehicles available, and those that were seemed older and with higher mileage. But last month, she drove about an hour and a half to Maryland to pick up an Outer Banks model with about 5,000 miles that a customer had returned after three months to get the larger SUV.
“They took $15,000 off, which put it in my price range,” said Shumoski, who works in higher education. “I couldn’t pass it up.”
The Manheim Used Vehicle Value Index, which measures wholesale pricing, reached an all-time high at the end of 2021. The index fell through June 2024, but has slowly increased again as retail demand persists and inventories are tight. However, the Consumer Price Index’s used cars and trucks measure of retail prices was in deflation in December, down 3.3% year-over-year.
Cox Automotive Inc., a provider of digital tools to dealers, is forecasting retail used-vehicle sales in 2025 to reach 20.1 million, an increase of 1.2% from 2024.
In 2024, automakers sold an estimated 15.85 million new vehicles in the United States, according to Cox. That was the most annually since 2019, which concluded a five-year string of annual sales surpassing 17 million vehicles.
This amounts to fewer vehicles for resale, fewer leases converting to used sales and fewer certified pre-owned vehicles available. Natural disasters like the southern California wildfires can worsen the situation.
“The five-year-old car might become a little more valuable because there isn’t a three-year-old version,” said Mark Schirmer, director of industry insights at Cox. “If there are fewer of them, they go up in value.”
It’s created a weird dissonance, he said. Less supply means prices go up, but the supply is older, which should make prices lower. There have been other times when inventories have been smaller, such as after the Obama-era Cash for Clunkers program that began in 2009 and focused on getting older, less fuel-efficient vehicles off the roads.
“What happened right after Cash for Clunkers, used-car values went up because there were fewer cars available,” Schirmer said. “We’re into a similar dynamic right now because there are fewer cars available.”
But used-car prices also remain dependent on new-car vehicle sales. Average new-car transaction prices stood at more than $47,000 in 2024, according to auto information website Edmunds.com Inc., which is about $10,000 higher than average prices were five years ago. But buyers, on average, did get at least a little price relief last year compared to 2023.
Days to sell a used car off a dealer lot have remained flat, even as prices fluctuate anywhere between $5,000 and $10,000, said Ivan Drury, Edmunds’ director of insights.
“There’s no lack of demand for used cars,” Drury said. “They’re being scooped up.”
“Wonky” is how Mark Trudell, general manager of Extreme Chrysler Dodge Jeep Ram in Jackson, described the used-car market.
“The prices, they’ve adjusted a little bit, but it’s still a little volatile and can adjust pretty quickly,” he said. “With the (interest) rates coming down, affordability is getting better. But I’m a little hesitant to stock a lot of late-model cars. They adjust so much, so it’s hard to maintain.”
Connie Hoge, 73, of Glenwood, Iowa, thinks she probably could’ve gotten a better deal on her 2023 Bronco Sport she bought last month. With a 7.31% interest, the total she’ll pay on the vehicle is $38,946 after trading in a 2012 Explorer and putting down $10,000. But it was the right color — Alto Blue, the basic Big Bend trim package she desired and had under 8,000 miles.
“We did it spur of the moment, and we should’ve known better,” she said, though she likes how the vehicle handles and the gas mileage. “I think we could’ve found a bit better. You really don’t know until you have that paperwork in front of you.”
Others have had better luck: Matthew Hersey, 49, an insurance agent from Apalachicola, Florida, negotiated a $25,000 Chrysler Pacifica Hybrid with 90,000 miles down to $17,500.
“We have two kids in college,” he said about buying used. “I’m not looking to break the bank.”
For used EVs, the value index has fallen 28% since its peak in July 2022, as competitive pressures have cut new-EV prices, according to Cox. Prices fell after rental companies like Hertz Global Holdings Inc. dumped Teslas and other EVs during the pandemic. The second half of 2024, however, saw a 9.4% increase, suggesting a floor in used EV value.
“The worst is over,” Schirmer said about falling used EV prices. “But consumers still can get a deal.”
Because of the up to $7,500 federal tax credit on plug-in vehicles, most EVs are leased, representing nearly 80% of EV leases toward the end of 2024, according to Edmunds. That’s worrying, said Mike Stanton, CEO of the National Automobile Dealers Association.
“The benchmark is when you’re leasing more than 20-30% of your vehicles,” he said. “Imagine leasing, I don’t know, 1,000 of these cars in a month, then three years from now, losing $10,000 on all those cars when you have to take it back. Yeah, that’s not good. That hurts.”
But even for consumers, affordability can be a challenge. A residual might be $24,000 on an EV, and if it gets financed at 8%, that can translate to a $600-per-month payment, said Inder Dosanjh, CEO of the California Automotive Retailing Group, which has 18 showrooms in California’s San Francisco Bay Area.
“The balance is off,” he said. “It’s a crazy market.”
bnoble@detroitnews.com
