Lower Used Car Costs May Not Be Good in the Long Run, Industry Experts Explain
When Edmunds.com reported back in February that used car prices would most likely fall significantly during 2014, potential buyers were warned not to get too excited about being able to buy a used car at a lower price; the original article provided a detailed explanation, courtesy of senior editor Philip Reed, of how lower used car prices could “cause a ripple effect, influencing shoppers of both new and used cars.”
Considering that the automotive industry is just starting to regain its strength after suffering devastating losses during the recession, this wasn’t exactly music to the ears of American consumers.
And sure enough, just as Edmunds.com predicted, news articles have begun proclaiming that “it’s a great time to be in the market for a used car” — but in what probably reflects the overall uneasiness of American consumers, these articles focus more on the underlying reasons why used cars are so cheap right now, and what that means for the entire industry.
“Our used car inventory has more late model vehicles and fresh released lease cars than ever before,” says Greg Brooksher, Used Car Director at Hudiburg Nissan. “Lower pricing is a huge win for our clients purchasing used cars right now.”
The Detroit News and USA Today both state that the main cause of the current price drop is a “delayed reaction to a recovering industry”: when the economy stabilized about three years ago, more people were able to afford new cars, and many consumers chose to lease cars rather than buy them. Now that those leases are all coming to an end, the market is being flooded with millions of used cars.
For someone looking to buy a used car right now, this is good news. Dealerships across the country will be lowering their prices on used cars, and there will be a bigger selection of fairly “new” cars to choose from (i.e., cars that are only two or three years old, and are pretty similar to actual new cars right now, in terms in of technology).
But as USA Today explains, this isn’t great news for everyone else. Anyone looking to trade in their car will get a much lower value for it than they would have gotten at any other time. Car manufacturers will begin to raise rates on new leases, to make up for the anticipated low reselling price after the lease is up. New car sales will drop as consumers choose to buy more used cars than usual, and this could have very negative effects on the entire industry in the long run.
Although there isn’t a perfect way to control the extent to which used cars continue to decrease in price, the important thing is that manufacturers, dealers, and buyers are all aware that too much of good thing right now could shake up an already-fragile industry in a few years’ time.