Good news for those in the market for a used car. Now is the perfect time to buy or lease a used car.
Selection is high, prices are low and steadily dropping.
The reason for the decline in used car prices? Supply and demand.
According to Auto Trader’s Senior Analyst, Michelle Krebs, “We’re seeing used car prices drop from what had been record highs because the supply is increasing. The supply is up, so the prices are going down.”
The NADA Used Car Guide predicts used car prices will decline as much as five to six percent this year, which marks the first significant price reduction in eight years.
And it looks like the supply-demand curve will be out of balance for a while. TrueCar.com expects a 10 percent increase in the supply of one- to five-year-old vehicles, through 2018.
Buying Used Cars:
Pre-owned and Certified pre-own car and truck sales are going strong. Sales are continuing to climb. In fact, 38 million used automobiles were sold last year, which is up 5.6 percent from the previous year. According to Edmunds.com’s 2015 Used Vehicle Report, resale prices also hit a record high last year with the average price at $18,600.
Auto sales analyst Ivan Drury told NBC News the price decline is not being seen in all makes and models. While the price of subcompact, compact and mid-sized cars is flat or down, prices are up for SUVs, crossovers and pickup trucks are seeing a price surge due to today’s low gas prices.
“If you’re looking for a car, up to 5 or 6 years old, you’re good. If you’re looking for a pickup truck or SUV, you’re going to pay a bit more regardless of the age range,” Drury said.
The best deals can be found on small and midsize cars. This includes the Honda Civic, Ford Focus, Toyota Camry and Chevy Malibu.
The flip-side to this used car trend is if you are looking to trade in your vehicle you are most likely going to get less than you normally would, especially if it’s a small car or mid-sized sedan.
Leasing Used Cars:
The popularity of leasing in the new car market is driving this surge of available used cars. About 30 percent of all new cars are now leased, and most people opt not to purchase them when the lease ends.
Jonathan Banks, executive analyst with the National Auto Dealers Association (NADA), told CNBC’s “Trading Nation” there will be 800,000 more lease returns flooding the market this year than in 2015.
Dealerships have so much more inventory they are having to move. Most are becoming much more willing to offer leasing as an option for certified pre-owned (CPO) makes and models. CPO vehicles must meet certain age (typically no more than three or four model years) and mileage limits, and also pass a dealer’s inspection test.
“There’s no doubt that this is going to grow,” said Kyle Thibaut of Beepi—a new online used car buying service, told NBC News. “We’ve seen the activity and the buzz around it to be more than expected, so I can only expect this to grow as the used supply coming back from new leases continues to be at all-time highs. It’s going to be a very favorable environment for used-car leasing.”
BMW of North America, Toyota and Lexus are a few of the growing number of manufacturers who are embracing the certified leasing trend and are using it as a way to get more people into used vehicles.
Used car leases are still a small part of the market. Presently, sales are just under four percent of all industry transactions right now. But this is expected to change as more dealerships and lenders are warming to this option. Low interest rates are being offered as an incentive to entice people to lease used.
A quick word of caution:
“As with all automobile leasing, it’s always going to cost you more to lease the car than to buy it,” said Jack Gillis, author of The Car Book 2016. “And with today’s low interest rates for used cars, it really pays off to make the higher monthly payment, so at the end of the term you own a tangible asset rather nothing.”
Featured image by EveryCarListed P on Flickr and available for use under Creative Commons 2.0 license