Wednesday, September 26, 2018

Yeah, us too


The Wall Street Journal points out:

Rising new-car prices are pushing more buyers to the used-car lot, where they are finding a growing selection of low-mileage vehicles that are only a few years old.

Demand for used cars was unusually strong this summer and will remain at elevated levels through the year’s end as higher interest rates and rising prices on new cars continue to stretch buyers’ wallets, industry analysts say.

While used-car values have also increased in recent years, the gap between the price of a new and preowned car has also widened and is now at one of its largest points in more than a decade, according to car-shopping website Edmunds.com, making deals on the used car lot look like more of a bargain.

. . .

“Customers forget a new car is now more than $30,000 and they expect it to be $20,000,” said Brian Allan, a senior director at Galpin Motors Inc., a Southern California dealership chain.

“When people see the price has gone up, it is sticker shock, especially when people only buy a car every five to six years,” Mr. Allan said.

At the same time, the used-car market is being flooded with leased cars being returned to dealerships, increasing the supply and options for buyers looking for two- and three-year-old vehicles that are generally well maintained.

. . .

With nearly 40 million in sales last year, the used-car market is more than double the size of the new-car business. The shift in demand is a troubling sign for auto makers, which will be under pressure to deepen discounts to keep customers from defecting to used-car market.

There's more at the link.

That's pretty much what drove Miss D. and I to buy our new-to-us Nissan Pathfinder, earlier this month.  New prices were so ridiculous, in terms of value for money, that we simply gave up on the new car market.  We bought our four-year-old vehicle for almost exactly 45% of the list price of a new edition of the same model.  Since we plan to run it until it's no longer viable, it wasn't a major issue that it was a year older, and with slightly higher mileage, than most buyers find desirable.  It's been well maintained, with a full service history to prove it, so we aren't worried that we might have bought a lemon.  We've already taken it on a 300-mile day trip, and we're both happy with it.  (As another comparison, the current comparable model of the pickup truck I bought almost fourteen years ago [a Ford F150 regular cab SXT] now has a manufacturer's suggested retail price 211% higher than I paid in 2005.  That sort of price inflation is simply unsustainable for folks like me.)

We also noted that most buyers of new vehicles appear to be leasing them, rather than buying them.  We ran into this from salespeople all the time.  One tried very hard to sell us a Mercedes-Benz, arguing that we could lease it for the same amount of money each month that we'd need to buy a vehicle from a "lesser" manufacturer, so why not enjoy the luxury brand?  He couldn't get it through his head that we weren't worried about appearance, social status, or whatever.  We wanted reliable, affordable transport, which we could run for years without needing to replace it.  We got what we wanted.  He didn't.  (Shrug.)  We also put down a decent deposit, and financed the rest through our local bank, at a reasonable interest rate, over three years instead of five or six.  I'd rather pay it off sooner, and be done with it - and, by doing it that way, we'll never be underwater on our vehicle loan.

I couldn't help but notice that almost all of the brand-name dealerships we visited were showing a lot more turnover on their used car side than with their new vehicles.  It's clear consumers are voting with their wallets.  What does this mean for auto manufacturers?  I don't know, but if I were in their shoes, I'd be getting nervous about pricing my products out of the market.

Peter

15 comments:

Anonymous said...

Sticker shock is an understatement.

Years ago we were looking for a truck and I went to the Ford dealer to size things up. The first one I saw - $47K. That is nuts.

We buy cars 5-8 years old. Sometimes 3 yrs, off a lease. Luckily, I've come to know a used car dealer reasonably well, so I don't even shop that much. If I want something, he'll find it.

That truck we were looking for? We ended up with a Forerunner, about 4 years old. When I was cleaning it out, I found the window sticker - $39K. I paid like $17k. I put nearly 200K on that truck before it was hail damaged and the insurance totalled it. I should have taken the cash and kept the truck.

My current truck is a Sequoia. These things are in the $60K region new. Mine's ten years old. I paid like $11k. It's not even all that high mileage. Certainly in my comfort zone. Really, jap cars are so well designed/built that it's nonsensical to buy them new. 3-4 years old, detailed, look like new.

The most common argument I've heard for leasing from my friends and family is that if you are the type that always has a new car, and a car payment is forever part of your budget, than it makes sense to lease. I still don't see how the math works, since many agreements I've seen require a pretty stiff downpayment. And for all that, you don't have the asset, and it's really hard to get out from under it if you hit dire straits, or even have a life change of some type.

Beans said...

How much of the cost of a new car is due to stupid regulations and required mandates? How much is due to having to prop up bloated pensions and over-staffed factories?

I would not put it past our favorite State of stupidity, and the previous Administration's attack on the car industry, to have been behind much of the increase in new car prices.

As to leasing, never understood that. The confines of a lease are such that abnormal drivers will suffer under the parameters of the lease. And every year it seems the parameters shift to a narrower and narrower specification.

Last vehicle I had I drove for 19 years and over 300k, finally ditching it right as it was breathing it's last. Got a new-used van, and I anticipate riding that one for at least 15 years. By then, who knows what stupidity will be forced upon us.

Rick T said...

Don't forget Cash for Clunkers that took thousands of older cars off the market setting the stage for the rise in new car prices.

McChuck said...

There are more used cars available now, thankfully. Remember "cash for clunkers", part of the Obama aid package for the auto industry?

Side note - A 211% increase in prices over 13 years requires a 9% rate of inflation.

SiGraybeard said...

New car makers are between a rock and a hard place on their pricing, with what @Beans said How much of the cost of a new car is due to stupid regulations and required mandates? How much is due to having to prop up bloated pensions and over-staffed factories? and what @McChuck pointed out A 211% increase in prices over 13 years requires a 9% rate of inflation., which happens to be pretty much what Shadowstats.com has been reporting.

Their prices get forced up largely by the EPA, DOT and the rest of the Fed.gov three letter agencies, along with their UAW contracts. The Law of Unintended Consequences had the effect that the new cars no longer have an expected life near 100k miles. I had a 1990 Jeep that I sold at 150k miles and 15 years old, that had never had anything major go wrong on it. I know guys that got over 200k miles on their Ford F-150s or Explorers.

As others have pointed out, my last car is an '09 year old Ford Exploder that was high mileage when I got it in January '12 (6-1/2 years ago) and is now low mileage. I got it for less than half the original price. My wife's last car was a '13 that we bought in '15. Hers was slightly over half the original price.

I see virtually no chance that I'll ever buy a new car again.

Nuke Road Warrior said...

Bought my last new car in 1985 (VW GTI). I'm also the guy that, except for lifestyle changes, drives a car until the wheels fall off. Today's cars are so much more reliable than in the "Good old days" when cars did not last past 100K miles that you don't gain that much additional usage for the new car cost penalty.

NITZAKHON said...

Having worked in the automotive industry for some years, they're so focused on profit-increasing "value-added" features they're forgetting people have to buy these things.

Probably next year I'll be in the market for a new vehicle - though I'd love to squeeze another couple of years out of the current hamster-mobile if I can.

I don't want touch-screen computerized wifi Bluetooth crap. I don't need rear-view backup cameras and automatic/electronic everything. But they're stuffing cars with all this stuff and then are shocked that people are not buying it.

Magson said...

I read somewhere a year or 2 ago that the backup cameras are now mandated by law, but that they were already in about 85-90% of all new vehicles when the law was passed anyway, so having a law force it on the last 10-15% seems a bit redundant.

mn-- said...

Up until at least recently, Mercedes-Benz did tick two of your requirements easily, on some models... reliable, that you can run for years and years.

Affordable, well, that's the problem. But apparently Mercedes approximately never admits that something would be unfixable, or something like that.

A friend has had a bit of a ridiculous problem with his Mercedes - he'd like to have it registered as an antique for the lower tax we have for those, the thing is 50 years old... but that'd mean he'd have to replace all the unofficial spare parts like rubber door seals and such, with factory-spec ones BECAUSE THEY'RE STILL ORDERABLE AS NEW PARTS FROM FACTORY. At hundreds of € per door, just for that Mercedes stamp on the rubber.

Tsgt Joe said...

I’ve been thnking I’d like to have a pick up, my travel trailer is crowding the tow capacity of my chevy traverse . One of my sons is getting off a 3 year lease on a ford 150, I thought I could buy it used at a reasonable price until he told me the residual value is $34,000.

LCB said...

Watch for certified used cars. They are formerly leased vehicles, usually with less than 40 or 50K miles and any warranty left still applies. The vehicles are about 30% less expensive than new. I got one that was 2 years old but only had 17,000 miles on it for 33% less than I would have paid new and still have 3 years warranty on it.


Last basic pickup I bought was $19,000 in 2004. Now, can't touch it for less than $35,000 IF you can find a basic truck.

cannon said...

another driving factor in the used car market is all those folks getting/returning to jobs. many of them held onto the old clunker, or had no car, and now they have a job, they are looking to purchase/upgrade. so the market for used cars is pretty solid.

Will said...

Lots of insurance totaled vehicles from the last year or two of bad weather that flooded various states. Those owners are looking for replacements, so that has to impact the market for used vehicles.

Linda said...

My car was totaled in a wreck that was not my fault. It was a 2000 Malibu that was a rental car for $7K. So, it was 18 years old. I asked someone in an office where I had an appointment if she knew anyone selling a car. Yes, she did. It was a2008 Impala with less than 47K miles and was bought for $5K. I feel like the luckiest person on earth. It has original tires and battery and was driven by an 88-yr-old woman since 2009 when she bought it with 17K miles. It has been in a carport, so the finish looks new. The battery has been replaced and the tires will be replaced in Oct, even though the tread looks new, the tires are old, way past their life.

I had been shopping and found cars in early 2000s for $10K or more. It was ridiculous. This is going to be my last car I buy.

Francis Turner said...

Like this meme says:

'Car commercials that show a middle class husband buying hos wife a car as a gift is so unrealistic. It's like "hey honey, as a gift this year I made a huge financial decision without your approval. You might want to look for a second job, Merry Christmas"'

http://di2.nu/pix/carbuying.jpg