Are used vehicles an appreciating asset now?   Posted 5/9/11

                The old common notion is that used cars are a continuously depreciating asset to the consumer, dealer, and finance company.    You can throw that old common notion out of the window now. In April of 2011 used cars hit a record high. Over the past two years used cars have been steadily rising. It is hard to single out a reason for this trend. Basically it is more of a culmination of reasons why.

Reason # 1: Production of new cars has slowed.

In 2009 and 2010, car manufacturers slowed production of new vehicles to compensate for the economy. This has made less used cars today. Many of Americans iconic manufacturers went out of business including; Saturn, Pontiac, and others.  Also, the earthquakes and other natural disasters recently have slowed the production, especially in Japanese cars and its manufacturing affiliates.  

Reason #2: People are hanging on to their used vehicles longer- Less traded vehicles.

New car sales have dipped because the consumer is holding on to their vehicles much longer.  In the past consumers have driven their vehicle for a short time;  ie. until the factory warranty is out or for one year, etc. People now are driving their car until the wheels fall of. The consumer would rather repair a car as opposed to buying new. This means less trade/less supply. By the simple laws of economics, less supply means higher demand.  Higher demand means higher price.

Reason #3: Cash for Clunkers effect.

The cash for clunkers sounded like a good idea for 2009. It is not looking that way for the used car market now. The “clunker” worth supposedly under $4000.00 was traded in and legally needed to be destroyed. This took thousands of good running used cars off of the market forever. This means less nice used cheaper vehicles are out in the market for resale.

Reason #4: Less people are leasing vehicles.

Leasing vehicles puts a lot of used vehicles into the market because after a lease is up the factory usually sells it to a used car dealer. New car business is down so leasing is also down. This means that there are less off lease cars in the used market.

What do all these reasons mean to you? This means a couple of things. First off, this means that used car trade in values are up very high. Second, this means that the cost of a used car is going up which means the ‘deals’ of 2008 are no longer available. Thirdly, financing option will be better for the consumer as investors will be flocking towards the used car finance companies.

Basically most used cars have risen 1500-3000 in the past six months. There is no telling how long this trend will continue. With new car sales and production showing no signs of picking up, used car appreciating could be the new “common notion.”

Written By: Grant Bond manager 3445 Car Store / Owner Alternative Car Rental and Leasing