Used-Car Prices Could Fall Over Next 12 Months

Used-car prices could fall 4% to 5% over the next 12 months, residual-values predictor ALG said in its latest monthly report.

The collapse in new-car sales during the recession left the market with fewer late-model used cars, and used-car prices have increased since mid-2009. In turn, buyers switched. In 2010, shoppers bought 3.2 used cars for every new car, according to data from Automotive News and CNW Marketing Research. That declined to 3.0 used cars for every new car in 2011, and through last month, it’s at 2.9. As demand for new cars has picked up faster than demand for used cars, ALG said it “expects used market prices to drift back toward historical norms.”

That could take some time, however. Used cars are still in short supply. It could take up to three years for used-car prices to decrease 8% to 10% from today’s levels, ALG said, and prices wouldn’t hit pre-recession levels anytime soon.

The slow decline will leave some shoppers in a tough spot, as it comes amid rising new-car prices. Last month, CNW said the average new car sold for $2,338 more than it did a year ago — up nearly 8%.

Like ALG, we’ve said used-car prices will stay high for years to come, but there’s slight relief today. Auto auction company Manheim releases a widely cited Used Price Index, which in August declined for the fifth month in a row. Still, it remains elevated above any point before April 2010. CNW said last month that used-car transaction prices decreased year-over-year by $662, or 6.9%, at independent dealerships, but they moved up $117 (1.2%) at franchised ones. (Joe’s Used Cars is an independent dealer; Joe’s Chevrolet is a franchised one.) CNW doesn’t track private sales, which make up some 30% of all used-car sales.

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