Strong new car sales are expected to drive down the prices of used cars in 2015.
Aside from adding to the coffers of automakers, the robust sales of new cars created an additional side affect: cheaper used cars.
New vehicle sales were about 16.5 million last year, which was an increase of 5.9% over 2013. That trend is expected to continue this year, which puts pressure on those looking to sell used cars, according to analysts from the National Auto Dealers Association.
“For the first time in 20 years, wholesale auction prices of used vehicles actually increased during December,” according to Jonathan Banks, executive analyst for NADA Used Car Guide. Banks also stated, “The 0.3% increase during the month is significant…since the average price for December the last 10 years has seen a 1.4% drop.”
Due to strong market sales, consumers looking to buy used in the first three months of 2015 will find prices similar to―if not lower than―what they would have paid in the first quarter of 2014.
The auction price isn’t the only factor impacting the price of used cars, NADA notes, tax refunds, lower gas prices and seasonal factors all contribute to pricing. With new car sales going strong, dealerships are expecting to get an influx of quality trade-ins from those buyers.
This influx of used cars will help to push the price of used cars down in the near term, which is the opposite of what used car pricing has been for the past several years.
As recently as last year, the price difference between a new car and a used one was nominal. In many cases, this drove buyers into new cars: one of the contributing factors to the new car sales growth. However, the market has changed substantially.
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With unemployment at the lowest level since 2008 and used vehicle inventory levels starting to rebuild to normal levels, both new and used vehicle buyers have found opportunities to buy.
Used vehicle sales are on the rise, finishing 2014 with a 3.3% increase year-over-year, according to TrueCar, the online car selling site. The affordability of used cars is compared with those of new cars.
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New car prices are on the rise. The TrueCar new to used vehicle ratio (for every new vehicle sold, x amount of used vehicles are sold) is down 2.5% from last year. The decline is due to the steeper increase in new vehicle sales volume, up 5.9 percent this year, versus used vehicle sales, which are up 3.3 percent. During the recession, the ratio widened as new vehicle purchases declined, which also curbed future used vehicle inventory levels.
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TrueCar predicts the U.S. supply of used vehicles in 2015 will return to a more normal level after a period of unusually tight inventory. Next year’s supply of used vehicles that are five years old or younger should increase by 10%.
“This is the last year we expect used supply to be impacted by the recession’s pullback in new vehicle buying,” said Larry Dominique, TrueCar’s executive vice president and president of ALG, TrueCar’s residual value data unit. “An increase of supply would benefit consumers shopping for used vehicles next year in terms of selection and potentially lower transaction prices.”