Saturday, April 8, 2017

2017 and 2018 might be good years for used car buyers


Miss D. and myself are frugal vehicle owners.  We buy used vehicles, paying cash whenever possible, so as not to go further into debt.  Both our vehicles are fully paid for, and are providing reliable service.  When they begin to be unreliable due to increasing age and/or mileage, we'll replace them with something similar.

It looks like 2017 and 2018 may be very good years for people with that attitude.  Bloomberg reported late last year:

Thanks in part to low interest rates, leasing has become an increasingly popular way to drive away a new car ... Typically a lease lasts about three years, after which the customer returns to the showroom for another vehicle -- which is when things could get difficult for the industry.

"There's going to be a lot of units coming back over the next several years," Ford Motor Co. warned last month. "They're going to get to levels that we have never seen on an absolute basis in the industry before".

In 2017, about one million more off-lease vehicles will be available in the U.S. compared with 2015. That additional volume will put downward pressure on used car prices.

If cars depreciate too quickly, consumers will be unwilling to pay high prices for new vehicles. High residual values also help to keep monthly lease payments low. In other words, if used car prices fall, the whole system comes unstuck: automakers' earnings will likely fall and car finance companies (often a subsidiary of the manufacturer) may have to book writedowns on the value of their leased assets.

During the 2008 recession fewer people bought new cars, meaning there weren't so many used cars for sale in subsequent years. That's helped price to hold up fairly well, but there are signs that's all about to change.

Last month, Hertz Global Holdings Inc. warned of a big increase in depreciation rates for its rental fleet due to lower than expected resale values. It warned residual value pressures would continue into next year and that others in the industry "can't be immune to this factor."

There's more at the link.

Now Morgan Stanley has warned that the price of used vehicles may fall even more drastically, thanks to technological improvements.

The push for better safety on the road may inadvertently hurt used-car owners and investors in companies or other instruments tied to used-car sales and financing. The average age of used cars in the U.S., for example, is 11 years. Few if any of those cars are equipped with the latest ADAS features.

As safety features become the norm, “the average used car may be seen as a substantially inferior mode of transportation, an unacceptable safety risk, difficult to insure and worth less at auction," Jonas says. Indeed, in a typical economic downturn, used-car prices might drop 15% to 20%, but their accelerated obsolescence could see prices fall by up to 50% over the next few years.

This drop in value for used cars could ripple through the entire industry. “The used car is the consumer's currency," Jonas says. Falling prices could make it harder for car owners to trade up when they want something new. Given that 90% of new car purchases include a trade-in, manufacturers could also face challenges. If consumers get less for their older models, dealers might have to offer deeper discounts to make sales, and automakers could start to the feel the pressure to their bottom lines, too.

Again, more at the link.

Such advanced technologies may be desirable to some, but to those of us who've done without them all our lives, they don't appear to be all that vital or necessary.  I've been driving without them for the best part of half a century.  I daresay I won't feel deprived if I don't have them tomorrow . . . and if that means I can pick up my next vehicle for half what I'd pay for it today, I'm fine with that.

There are those who argue that cities will make such features mandatory on vehicles wishing to use their roads.  If we don't have the latest safety technology, we won't be allowed to drive there.  My answer to that is simple.  I have disposable income.  I can spend it where I please.  If cities, or suburbs, or areas make me unwelcome, I won't spend my money there.  I'll take my business somewhere else.  See how long their economy lasts when all of us in a similar position do likewise, and their sales tax revenues tank, and many of their stores close their doors due to lack of customers.  No, if they want me to have the latest technology in my vehicle, they can damn well pay for it.  I'm not going to waste my hard-earned dollars on it.

For those who can resist the desire to have the latest and greatest in transportation technology, with all the bells and whistles, it looks as if the next couple of years might be a lot more affordable than they appear at present.

Peter

19 comments:

Miguel GFZ said...

Anti Collision systems are unnecessary for those of us who PAY ATTENTION TO THE FRIGGING ROAD WHILE DRIVING!

Sorry about the outburst :)

Anonymous said...

Interesting. I guess the artificial scarcity in certain types of cars and trucks caused by Cash for Clunkers is finally clearing out. I looked at used cars for our last purchase, and it was cheaper in the long run to purchase a new truck than used. Purchase price was only about $2000 less for used, I got those first few 'golden years' under warrantee, and I was able to pick out exactly what I wanted.

This is good news for the used market. More stock to choose from and more reasonable prices are good things.

Carteach said...

I'm employed as a tech with a used car business. My days are split between preparing vehicles for sale, and servicing customer cars.

I see this glut of lower priced used cars as good for us, as we are a 'buy-here-pay-here' car business. The man I work for finances a LOT of vehicles for people who just can't get a car otherwise. Yes, it's full book prices and 20% interest, but we turn those cars out in top condition for the lot. A careful car owner can expect to get years of trouble free service from one of our vehicles. Many of our customers wouldn't have a reliable car by any other means, and it's life changing for them.

BHPH buyers are a lot like low-priced house buyers. The market strength really doesn't matter.... it's going to be a busy sector.

Glen Filthie said...

Up here in Alberta we have a lot of rig pigs that made big money during the boom - and spent it! It's rude to say but true: a lot of them were low IQ white trash notorious for buying big ticket items and abusing the crap out them. I wouldn't touch one of their vehicles with a 10 foot pole. Add to that: can unethical sellers still roll back odometers, Pete?

I buy my vehicles brand new, and drive them until the doors fall off. I gave away my 97 Jeep to my friend's son. It was rusting out on the body but was still mechanically sound. I wonder how our economics would compare? For me, I get into out of the way places and I like knowing the history of my vehicle and being able to rely on it without question.

acairfearann.com said...

The 'difficult to insure' bit, however could become very expensive very quickly. We tend to think of regulations as driving forces for things, but insurance is a mighty force. If insurance companies decide that those safety features are worth it, that old 'cheap' car could get to a very expensive daily driver.

Orvan Taurus said...

Last time I had brake work done, the mechanic was surprised the car did not have antilock and did have rear drums. It's almost 20 years old. And I've seen Edsel's and even Model T's on the road. $HOUSEMATE claims I'll drive my car "until the wheels fall off." and I reply "It'll be maintained so they don't." About 170,000 miles now. Broken in, not broken down. And if I *do* need to replace it? Craigslist makes finding a decent used vehicle a lot easier than it used to be.

Uncle Lar said...

My vehicle of choice is a small 4 cylinder pickup, manual transmission, extended cab, with air and cruise.
When I bought the current one I would have been fine with a well cared for used model, but such were thin on the ground. What was available was tricked out hot rods with all the bells and whistles that pushed the sticker price up to the point where they were asking near what a basic new truck could be had for. And the fancy used ones I looked at appeared to have been rode hard and put up wet as we used to say.
So when I decided I needed an upgrade, mostly because a family member desperately needed anything with wheels for transportation, I went to the local dealership and told them flat out, no credit check necessary, if I like your price I'll pay cash. That does get their attention. Did have to go through that whole "I can't make a deal like that, I'll have to go get my manager." And I also had to remind them of the $1k rebate currently being offered by their brand for that model.
Wrote them the check, drove it off the lot, and have never been back. They offered a deal on tires and maintenance which I smiled at and never agreed to in writing. I'd rather do the work myself or pay a mechanic I trust than get "free" service that winds up costing far more in the long run.

el diablo loco poco said...

Heh. Just traded out of a 28 year old pick-up for an 18 year old rust-free Cherokee with an engine leaking oil into the coolant. Had shop to do engine replacement with remanufactured engine, did the rest myself. Springs and front end work. New brake calipers. New tires. Fixed/fluffed up the interior a bit. Now have a 4x4 Cherokee that is good to go, for about 20K less than an equivalent new vehicle.

Except that there are no equivalent new 4x4 vehicles. That is a shame, but even things as simple as ground clearance are unavailable for a reasonable price. [FWIW, 50K+ for a 4x4 truck is maybe reasonable in today's economy post printing-press FED, just not reasonable for ME.]

Sometimes old and gnarly is better than new and fluffy. A 'mostly new' 4x4 Cherokee for under 10K? Yeah baby.

0007 said...

My 17 y/o Isuzu 4X4 has 175K+ miles and I plan to drive it until I'm in the old folks home sucking gruel through a straw.

Mark Matis said...

My 1994 GMC Suburban K1500 only has 470871.9 miles on the odometer right now.

Last year without airbags. Still get a safety discount from USAA.

Josh O said...

"Anti Collision systems are unnecessary for those of us who PAY ATTENTION TO THE FRIGGING ROAD WHILE DRIVING!"

^EXACTLY!

I will drive XJ Cherokees forever, A car should be a car, not a wifi hot spot or hard drive for music or any other of that pointless crap.

rfb said...

Wait until the next trend starts expanding beyond the current states in-line for implementation (CA & OR).

In those states, since "dedicated" gasoline and highway tax revenue is diverted to feel-good programs and reprobates, they need a new source of money for the roads.

The new system requires mandatory .gov supplied GPS readers to tax you per mile driven.

You will be made to care.

el diablo loco poco said...

Yeah, and even if there is a booming glut of good used vehicles, none(i.e., very few=effectively none) will be pickups. People drive their trucks into the ground, or a telephone pole, or into a ditch, or until the frame rust causes failure, or they give it to their kids. Not so many make it back as trade ins, and those that do get into the used market are under-maintained fleet vehicles driven by rawhiding yahoos until fully depreciated and sold at auction.

XJ forever Josh O......or until the Crank Position Sensors are no longer available or the rust eats it in half.

Well Seasoned Fool said...

About leases. Spent decades in the car biz. Worked for the #1 14 years in a row Red Carpet Lease Ford Store.

The lease is based on the capitalization price, what the lease company pays the dealer. This is negotiable. Granted, with a lot of screaming by the dealership personnel.

Don't get sucked into a low payment with unrealistic annual mileage. If you drive 18k a year, lease term 18k per year. If not, you will pay much more at the end of the lease.

Assuming decent credit, the lease payment will be based mainly on the residual value at the end of the lease. This is also negotiable by shopping different lease companies (and the dealer has more than one arrow in their quiver).

Spend a few bucks for an hour of lawyer time and examine the legal liability of owning vs leasing. In general, the lease company owns the liability as they own the vehicle.

Hate the whole dealership experience? Poor baby. Six hours of exhausting negotiation saves you say, $3,000? Do you make $500 an hour at your regular employment? Cowboy up.

YMMV

Anonymous said...

One thing I point out to my Green friends is the environmental impact of new cars, especially the hybrids. The nickel mining, the ore processing, the multiple trips across oceans in sludge-burning freighters, the sheer amount of coal burned in Chinese factories to make the parts--all so they can APPEAR eco-conscious.

A used car needs none of that. It already exists. And I enjoy the look on their faces when they realize my "recycled" ride helps the planet more thantheir Prius ever will.

Antibubba

MrGarabaldi said...

Hey Peter;

I presently am driving a 1999 F150 Lariat Extended cab with 183000 on the truck. I bought the truck used and will drive it until the wheels falls off, but they won't because I take care of my vehicles. Don't pay for a new vehicle, Let someone else pay the depreciation. Older vehicles are cheaper to insure, cheaper Ad-valorum tax. and most cars are well built so unless they are abused, you will get years of good service out of the car of the regular maintenance is done.

Suz said...

Car dealers hate me. I drive 200-250 miles a day 4-6 days a week, so no thanks, not interested in any kind of a lease.

I want a radio, cruise, a/c, a spare tire, 4 wheels and a steering wheel, good gas mileage and everything else is a bell or whistle in which I'm not interested. Ok, it's nice if it's blue, but if the price is right, I don't care about the paint.

DH and I agree about a price I want to spend, and I sick him on the sales guys..."Oh, when it comes to price, you have to talk to my husband"...(eyes batting) Who is a semi-retired farmer, and not ever been interested in spending much of anything for anything.

My last car was a manual transmission. Currently I've got a red Impala which has been much better than I ever thought it would be. DH picked it out. It was a 2012 lease turn in with 15000 miles on it when I got it in 2014. Got it for $15k--it had a strong odor of cigar. It now has 158,000 miles on it, doesn't stink at all and is going great. Yes, I keep it well maintained, and no, I don't drive the crap out of it. And yes, we paid cash for it. When it gets a little temperamental and starts to get expensive, I will go and get something else, probably another lease return. Without turning it in. We will either find someone who could use a beater, or junk it ourselves.

DH drives a stripped down small pick up in white. It has a radio, cruise, a 6 foot bed and roll down windows.:) It only has 30k on it for mileage now, so I'm sure we will have it for many years to come. He did buy it new, (one of only 3 vehicles he has ever bought new) and did pay cash after hard bargaining. He says he like to see the salesman sweat so he knows they worked hard for their money, like he did for his...He wont let me come along as I always feel sorry for the salesman.

Greybeard said...

WSF made me smile with his $500/hr comment.
I LOVE to go to 2 or three dealerships when I buy new and tell them "give me your best deal. I'm shopping and if you have the lowest price you'll get my business."
Inevitably they'll still say, "If you get a lower price..."
But wrangling with 'em a while gives you solid indication what their bottom line is. I actually had one dealer tell me of another dealer,
"He can't sell you that car for that price. When it shows up he'll tell you he made a mistake in his figures and show you the car hoping you'll pay the extra rather than re-order."
I too buy new, then drive 200,000 miles or so before trading.
New bells and whistles are generally frivolous, but I gotta tell ya, or new Taurus' cruise function that maintains a distance between you and the car you approach until you pull out to pass is mighty sweet!

Anonymous said...

I buy used cars generally around the 2000 dollar mark and drive them until they lose a system that's simply not economically feasible to replace. I love the old ford panther platform based cars like crown vics, Lincoln town cars. They're fleet vehicles so parts are cheap. The 97 town car I have has 300k+ on it and runs perfectly and still doesn't burn any oil. It's comfortable for long trips and commutes and averages 21 mpg. My crown vic is unfortunately finally falling apart and is due for replacement this fall. I paid practically nothing for it though and put 200k on it. Unfortunately needs a oil pan replacement and it's too much hassle for a car that has rust issues and has hit a half a dozen deer. The poor girl's beat to death. To replace it I'll find a town car with 100-130k miles in good shape for around 2k and drive it for 2 or 3 hundred thousand miles before it falls apart or gets pummeled by wayward deer. Trucks are unfortunately a different story. The days of 500 -2000k trucks are long gone thanks to cash for clunkers. It's hard to find a decent farm truck for under 5k or even 10. New trucks? No way. I couldn't afford to keep it if you gave me one. Taxes, plates and insurance put them out of my price range.