Used-car prices rise, new-car prices fall - so how much is a car really worth?
Filed under: Technology, Economy
Manheim, the largest auto auction company in the world, recently announced that used-car prices rose rapidly in the first half of 2009. Manheim's auto-auction index, which fell precipitously at the end of 2008, has jumped by 16.4 percent since January. It's now at a 21-month high.Analysts cite numerous reasons for this spike: reduced consumer confidence, tight credit, a rise in consumer thrift, even the onset of much-dreaded deflation. But Manheim argues that the most important change is a sharp reduction in new-car sales. With fewer new cars driving off lots, dealers have had fewer trade-ins, which translates into narrower used-car options. Even with the number of repossessed cars steadily rising, the used-car stocks are growing thin.
The price rise is hard to miss. in June the average wholesale cost of a used car broke $10,000 for the first time in a year. These increases, of course, are passed on to customers; caught between high new-car prices and stingy lenders, buyers have had little choice but to accept the high prices.
But another interesting trend has emerged from the shrinking used-car market. With new-car prices and used-car prices rising, the automobile market seems to be seeking equilibrium. Somewhere between overpriced new cars, which magically seem to lose as much as 40 percent of their value when they drive off lots, and underpriced used cars, there seems to be an emergent true price that reflects the actual value of a car.
As the past few months have amply demonstrated, a large portion of an item's value is embedded in the market. It's hard to argue that a house is worth $300,000 if nobody is willing to pay $300,000 for it. But as with homes, the value of cars is tied up in hundreds of factors, some of them unquantifiable. In fact, it would seem that the only mechanism capable of filtering through the endless array of value-based variables is the market.
This emerging pricing, which seems to be somewhat reflective of the practical value of a car, represents a far more hard-eyed mode of valuation than car consumers are used to. Prioritizing economy over extravagance and value over prestige, it suggests that consumers will be less likely to turn up their noses at a gas-sipping hybrid or a clean pre-owned car. It's a thrifty perspective for a practical age.
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Reader Comments (Page 1 of 5)
7-09-2009 @ 5:20PM
MikeDudical said...
This is totally true. Websites that feature used or repossessed cars like craigslist.com and repofinder.com have a glut of vehicles available.
Reply
7-12-2009 @ 9:43PM
mightybo said...
If this is true...it is time for me to start buying cars...Me and a buddy purchased about a car week back in the early 90's, in what started as a plan to flip just one car...buying and selling cars for $2k-$5k is a profitable flip...AND (for the Single Mom/Low Risk) you can agree to raise the price slightly in exchange of you holding the note, take half down to reach break even, and charge $50-$100 a week.
7-13-2009 @ 3:21AM
MICKEY said...
Good, then the predriven, preowned used automobile car that I already own is worth more. Sweet!!!! P.S. - No car salesman is honest, none, not one.
7-11-2009 @ 6:23PM
rhammitt said...
Thats the american way kick the people while they are down just to make a buck and car salesmen want us to believe they are honest about like a lawyer they are!!!!!!!!!!!
Reply
7-12-2009 @ 8:39AM
I finance said...
Rhammitt, you are an idiot. I have been in the car business for 23 years. The average car salesperson sells a car for under invoice and gets paid a $75 flat commission. Where is the rip off? Once in a blue moon we sell a car for a profit. When I say profit, I mean $300- $500 over invoice, which translates to $60- $100 commission. Yeah, we rip people off ! What do you do, fix computers for $500 a pop, when it just entails cleaning the internal fan?
7-12-2009 @ 10:41AM
Lizard said...
" I Finance"....The whole rackett of selling a vehicle "at, or below invoice," is a crock of crap. You're also implying that the dealership only wants to make a $75.00 profit in order to pay the salesperson. New cars are marked up $2,000-$5,000 over WHOLESALE invoice, not the bogus retail invoice they show the customer. You must be the North American Dealer in Crapola.
7-12-2009 @ 11:34AM
TJ said...
Why don't you be HONEST... Tell us what the actual cost of the car is. What the dealer actually pays for it. It's not the sticker price...thats the piece of paper you want most people to believe. If you sell below invoice price, I bet the dealer is still making thousands of dollars of profit.
7-13-2009 @ 9:01AM
jdl7117 said...
I finance, I have to call b*llshit on your comment. My brother is a car salesman, and they make a minimum of $700.00 per car, and the mark up is usually 30%.
7-13-2009 @ 1:26PM
craig said...
We are a capitalist nation, or at least we used to be. Our entire economy is based on something getting sold. Whether a product or service, something is sold. I don't fault salesmen for making a profit. A profit has to be made in order for the economy to thrive. Whatever you do for a living is no more honest or less honest than a car salesman. Car salemen lie to customers no more than customers do to them. When you trade in a car I don't believe you give full disclosure on everything that is wrong with it. There are so many consumer advocate groups trying to protect the consumers that dealers can't lie. The best deal you can get is one you're happy with. It is impossible to "get screwed" on any transaction. If you don't like the deal, walk away. If you find out later you think you paid too much then ask yourself why you kept shopping after you made the purchase. Also, supply and demand have a great determining factor on the price of everything. Your dream of absolute equality will come true as we become a Socialist nation though. Be proud you put Obama in office because now "big brother" can protect you from the nasty old car salesman.
7-11-2009 @ 7:09PM
George said...
People buying more used is not good news for Chrysler or GM. Less new cars will be sold. It only makes sense when you spend $50 billion to save 88,000 jobs while 3,000,000 hit the unemployment lines within a year. Taking care of your friends instead of the economy will come back to bite O'Bama in the butt.
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7-13-2009 @ 4:44PM
Rondeyc said...
Wasn't George Bush the one who set the aotu bailout in motion?
7-12-2009 @ 12:31PM
SUe said...
We can only hope....stop the Obama madness!!!!
7-13-2009 @ 9:02AM
jdl7117 said...
Yes Bush started the Idea but it took Nobama to really f#ck it up!
7-11-2009 @ 7:45PM
Eytan said...
you can get a $30.000 3 year old car loaded with 20.000- 25.000 miles for about $13.000-$14.000, and and if it looks and run good you can owen VS lease, and thats a good deal
Reply
7-12-2009 @ 5:50PM
neil s said...
great spelling ther buddy!
7-11-2009 @ 8:10PM
B. Morris said...
Makes you wonder how much controll over the used market do the manifacturers have? They controll the milage allowances, depreciation rates, do the lending on new cars, seems like they have all the bases covered! We've all been victimized enough by the auto industry, buy it today, tomorrow its worth 50 cents on the dollar crap! 100,000 mile warranties are only as good as they'll allow them to be, once you've bought it try and get it fixed, excuses, fine print horses asses syndrome!
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7-11-2009 @ 8:24PM
scott polikoff said...
MANHEIM SUCKS
Reply
7-11-2009 @ 8:35PM
mage0213 said...
The prices of used cars are only high because of greed- even individuals are demanding outrageous prices for a used car that will probably lose a motor within 6 months. I just bought a used van, it was tagged at 1500.00, but if you know how to haggle you will win.. BTW I ended paying only 650.00 for it.. you have to take notice of every little quip, a little stutter in the steering is a warning that your CV joints may break soon, or just that the car needs a front end alignment, as the dealers lie to you, you have to be prepared to explain the worst possible thought.. IE CV joints will knock more off a price than a front end alignment.. the muffler is loud.. the muffler may be split OR the exhaust pipe may be cracked.. look at the mileage.. it isn't always a good thing to see low mileage, look at the engine, is the mileage seeming low but the engine look likes it's been around the world a time or two? Be advised in the interest of selling a car mechanics have been known to turn the speedometer BACK to 50,000 miles even if it read 100,000 when they got it in.. My rule of thumb- I always presume the worst, and I plead the worst possible scenario.. IE I will probably need to rebuild the engine pretty soon it's over 150,000 miles.. is that an OIL puddle underneath the engine? look at the fuel lines, if they are orange, you may end up replacing them soon.. bring all the little things up.. I started at 1500, then to 1200, then a few more problems the seller decided he just wanted to ditch the vehicle and I paid 650.00 for it.. I got it dirt cheap, and without any major work I have a decent (not perfect) automobile, I will probably spend about 700.00 for a complete tuneup, new breaks and exhaust system but the engine seems reasonably tight still.. so this vehicle may last me 5 years. Just be advised anytimne you buy a used vehicle there is probably something wrong with it that the owner didn't want to deal with- OR it could just be that they got tired of it or got a good deal on a newer vehicle.. Just a little free advice to help you beat the dealers
Reply
7-12-2009 @ 1:22PM
Tom said...
How come theirs is greed at $1500 but yours is a good deal at $650. It is either greed on both ends, or the free market working as it should. My guess is if you were to sell a used car you wouldn't start at the price you think is fair.
10-03-2009 @ 7:58PM
Chris said...
WOW. mage213 is a total jerk off. You actually beat up some poor bastard over mufflers and shit on a 150k mile 1500 dollar car? Wow you are a fucking super negotiator. What a douche. It's dick pigs like you that make selling cars almost an unbearable task. I would have thrown you right off my lot.