Buyers in the market for a used car this Christmas can expect to pay as much as 19 percent more than a year ago as wholesale auto prices escalate amid tighter supplies and ample buyer demand.
There are several factors propping up used car prices in recent months after hitting a 15-year low in December 2008, according to Manheim Consulting, a provider of automotive remarketing services for the auto industry.
Manheim’s closely watched index shows wholesale auto prices steadily increased throughout this year. Constrained wholesale supplies, a freer retail credit market and a labor market that is losing jobs less rapidly should provide continued support to wholesale prices into 2010, according to Manheim’s news release.
Local used-car dealers said finding good inventory is among their biggest challenges in recent months.
“I could sell more cars and trucks if I could get them,” said Robert Parker, owner of Parker Motor Co. in Fayetteville.
Parker, who sells a variety of used vehicles on a cash basis, said the new car sales slump in recent years meant fewer used-car tradeins - one of his favored methods for acquiring inventory.
He said people aren’t trading cars as often and slack from a reduced rental/lease market and the thousands of cars the federalgovernment deemed clunkers all add up to a shorter supply for dealers like himself.
Justin and Norma Barridge of Wesley purchased a used Dodge Ram 1500 truck on Wednesday from Parker Motor Co.
“We have been looking since June for the right truck at a fair price,” Justin Barridge said.
He needed the extended cab to accommodate the couple’s baby boy, Rowan. The couple said they opted for a used truck because it fit their budget better and they recognized the value in letting someone else take the brunt of a vehicle’s depreciation in the fi rst two years.
A growing number of cost conscious consumers are opting to buy used vehicles to keep payments lower, said Steve Smith, owner of Steve Smith County in Springdale. Smith continues to expand his used inventory following the loss of his Jeep dealer franchise earlier this year. Smith still ofters new Buick, Pontiac and GMC vehicles in addition to his expanded used car business.
Smith said wholesale prices have risen but the dramatic oneyear hike looks worse because prices plummeted last fall when the credit markets froze and auto sales came to a halt.
Parker said he witnessed a couple of major changes in his20-year business history. One is the acceptance of higher mileage cars and the other is the extent to which wholesale buyers will bid up cars at auction.
He began noticing inflated auction prices a couple of years ago when leasing companies began turning back fewer cars.
Parker said when those one- or two-year-old cars are selling for nearly new prices, that takes the bar higher on everything else.
The Manheim index shows used car prices peaked in September, following the Cash for Clunkers program that closed in August. Some local used car dealers deemed the program a “debacle.”
Parker said the government incentive hurts the poorest people the worst, taking reliable vehicles out of the market and shredding their parts as junk. This means it will be more diff cult and expensive to keep some models running in the future.
He said dependable used cars priced $6,000 and less are the hardest to fi nd.
“There never were enough of them to go around and since Cash for Clunkers there’s even less,” Parker said.
“Cash for Clunkers was not very well thought out with respect to the impact on both used vehicles and parts,” said Jeremy Rose, a salesman with Ride Rite in Rogersfor the past 15 years.
Ride Rite operates in Springdale and Rogers and provides in-house financing for the majority of the vehicles sold there.
Rose said plenty of reliable vehicles were taken out of circulation to sell a few more new cars.
“We rescued a 2004 Jeep Liberty en route to the clunker heap by a local dealer. Needless to say, the vehicle was not a clunker and worth more than the $4,500 government allowance the sellers were willing to take in order to buy new,” Rose said. “We resold the Jeep almost immediately.”
Wayne Blunt, used car manager at Lewis Automotive Group,believes Cash for Clunkers was a success. He considers it a win-win for both dealers and consumers. “It brought out more buyers that ordinarily would not have traded in their vehicles and got some gas guzzlers off the road,” Blunt said.
After attending Manheim’s large auction Wednesday in Dallas, Blunt said used-car prices are noticeably higher. He said out of 5,500 vehicles sold, about 1,500 were priced in the $4,500 range.
Joe Chumbler, portfoliomanager of Boston Mountain Money Management in Rogers, said savvy consumers often recognize the benefits of buying gently used vehicles, instead of the rapidly depreciating new models.
Even cars that are only a year old are 20 percent to 30 percent cheaper than brand-new cars, according to Philip Reed, senior consumer advice editor for Edmunds.com.
Chumbler said attractive 0 percent interest rates now available on popular import cars could lure some usedcar buyers into a new car purchase, even though the asset will depreciate quickly in the fi rst year.
“It’s easier to justify buying new when you can do so at zero percent and put your money to work elsewhere earning about 5 percent,” Chumbler said.
Parker agreed with the jump in used-car prices, consumers with good credit likely can get into a new car cheaper than one a year or so old because of strong manufacturer incentives like 0 percent financing and cash rebates.
Business, Pages 23 on 12/20/2009