Used Car Prices Rising Due to Inventory Concerns

It's not just the average American driver who has to hunt far and wide for a used car bargain - dealerships are in the same boat. New car dealerships that operate previously-owned car lots compete against used car lots to find high quality, affordable secondhand vehicles that they can then re-sell to retail buyers, typically finding these vehicles at wholesale auctions across the country. Recent conditions in the used car market have made it much more difficult for dealers to find the cars they are looking for, which is translating into increased used car prices across the board.

According to a report in Automotive News, the recent spike in used car prices can be tied directly to the situation in Japan, where earthquake and tsunami damage has dramatically slowed down the production of several major brands such as Toyota and Honda. With fewer new cars being shipped to the United States, American dealers are currently scrambling to fill their lots with used cars in order to plug the sales gap that looms over the entire industry. Not only are dealerships facing a dwindling inventory, but they are also preparing for a significant reduction in rebates and incentives from manufacturers, a financial blow that has the potential to slow new car sales even further.

Used vehicles prices in some parts of the country are approaching the sticker of a brand new edition of the same vehicle. This is partly due to the fact that the average price paid for a new vehicle has been climbing, driving up used car prices. Prior price gains across the used car industry over the past two months are additionally compounding the current scarcity situation. Stepping outside of the retail situation, wholesale prices are now also higher, with some dealers being forced to seek alternative sources for their used car inventories, bypassing auctions and instead dealing more directly with used car companies and other fleet sellers.

Trade-ins from new car buyers have additionally received more focus in recent weeks as businesses scramble to keep their lots stocked. This is especially true for dealerships who have seen their supplies of certified pre-owned vehicles take a tumble. As the criteria for certifying a previously-owned automobile are typically quite strict, individual customers with well established service histories at a particular dealership have become prime candidates for cherry picking when they trade in their vehicles for new upgrades. The situation is a double-win for dealerships, as certified used cars are typically sold at a higher price than standard previously-owned models due to their warranty protections and guarantees.

What does this mean for those who are currently in the market for a used car? In some cases, shoppers might be surprised by how little price difference there is between a two-year old automobile and a brand new edition. At the same time, the current price situation could very well be a bubble, an overreaction by dealerships concerned that they will be left out in the cold over the summer selling season if they do not snap up as many used cars as possible right now. With the savings evaporating from the recent used car market, it might be a better idea to either wait for supply issues to be resolved or opt for a new car instead. Patient used car shoppers stand a better chance of snagging a better deal down the road.