UsedCarNews.com
September 3, 2018
Strong Economy Boosts Used Vehicle Prices
GOING STRONG: Dealers bid on cars during a recent sale at Columbus Fair Auto Auction. Prices at auction rose this summer as buyers sought inventory to meet strong consumer demand. By Ted Craig
After years of predictions that used-car values would collapse as thousands of of-lease vehicles looded the market, wholesale prices deied expectations and actually rose this summer. Almost all measures of wholesale prices saw an increase in July. Cox Automotive chief economist Jonathan Smoke said that prices continued to rise in the irst half of August. Smoke also made news by saying that the threat of automotive tarifs are contributing to the increase.
Cox Automotive senior economist Charlie Chesbrough said the reports picked up on that aspect, but really it’s a secondary factor at most. “There’s a whole lot going on in the used-car market right now,” Chesbrough said. The main driver is the strong economy, including unemployment below 4 percent. This means while supply is high, demand is extremely strong. The make-up of the inventory at auction is another factor. While sales reached 17 million in 2016 and 2017, they were extremely low in the irst part of the decade.
This means that while three-yearold cars are record levels, the overall supply is more even. Tom Kontos, chief economist for KAR Auction Services Inc., said many of those three-year-old cars never make it to the auctions but are instead sold upstream. Then there is the type of vehicles coming back of-lease. A few years ago, the wholesale market and the retail market were out of sync. Plenty of cars were sent to auction while consumers wanted trucks, SUVs and crossovers. Now Konotos said the supply matches demand and price trends
are moving toward parity. Finally, the price diference between new and used cars remains wide. Chesbrough said more than half of new cars were priced below $30,000 10 years ago. Now, it’s less than half. “New cars are priced out of the capability of many Americans,” Chesbrough said. So for now, used-car prices remain strong for traditional market reasons. “In the long longer run, tarifs can certainly be a factor if they’re enacted,” Kontos said.
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