News Column

Used Cars Are Fetching Premium Prices

April 11, 2011

Jim Gallagher

used cars

A new Toyota Prius these days starts at a list price of $22,410, which might prompt the cost-conscious buyer in this fragile economy to scout around for a used version.

But even a two-year-old model of the hybrid fuel miser costs almost as much, at about $20,800, according to National Automobile Dealers Association.

And don't expect dealers to come down much on the price of either one.

Blame spiking used-car prices on a shortage of late-model examples in the aftermath of the Great Recession -- when few could afford to buy new. The supply of new cars, meanwhile, is tightening as the Japanese earthquake puts crimps in the supply chain, shutting off manufacturing of many models. High gasoline prices, meanwhile, are making buyers hungry for little gas-sippers and hybrids.

The dealers association reports that prices on late-model used cars sold to dealers at wholesale auctions jumped 4 percent in March alone, and they're up 12 percent over the past year.

Consumers can't escape the consequences.

"We have to pass it on," said Denny Marquitz of Marquitz Buick Cadillac GMC in Troy, Mo.

Car shoppers are noticing -- to their chagrin.

"On the big car lots, they seem to be asking a lot more than the Kelley Blue Book value," said Brad Clark of O'Fallon, Mo., who wants to buy a used car for his 17-year-old son.

The price increases are highest among fuel-efficient cars. Prices for these type of cars -- which include models such as the Honda Civic, Toyota Corolla and Ford Focus -- jumped 11 percent at wholesale auctions last month alone, according to NADA.

The group expects prices to keep rising for months to come.

Used-car prices were rising even before the quake and the recent spike in gasoline prices. A sharp drop in new car sales two years ago is producing a shortage of late-model used cars on the market today, analysts say.

American vehicle sales plunged to 10.4 million as the recession hit bottom in 2009, far below the 16 million-plus level in the years before the slump. They're now selling at an annualized rate of 13 million.

The "cash for clunkers" program of two years ago sent 677,000 older vehicles to the junk yards as their owners cashed in on a federal subsidy for buying more fuel-efficient cars. Because most of the trade-ins were old, the program probably has only a slight effect on today's market for late-model cars, the kind prized by both dealers and buyers, said Jonathan Banks, senior analyst for the NADA Used Car Guide. It may be having more impact on prices for cheaper, older cars.

But another new factor has driven up late model prices: Smaller rental car companies have joined the bidding at auto auctions. That's because manufacturers have cut back on their cheap fleet sales to rental companies, forcing the companies to bid for newer used cars.

The result is the tightest market for used cars in 20 years, said Banks, who thinks the situation will remain tight through next year. Prices for used cars usually rise slightly in the spring, but the March jump was extreme, said Banks.

Auto dealer Marquitz said buyers were facing yet another problem: Lenders, worried that the higher car values are temporary, won't increase loan amounts to match the recent run-up used-car prices. "The customer has to come up with more money," said Marquitz.

GAS, QUAKE WOES

Gasoline prices, meanwhile, have jumped 90 cents over the past year to $3.66 in St. Louis, according to the AAA Auto Club of Missouri. That stems from increased demand in a recovering world economy, topped off by nervousness over revolutions in the Middle East.

Pricey gas is sparking renewed demand for smaller, fuel-efficient cars. The Japanese earthquake is adding to the nervousness, analysts say. The speculation among used car dealers goes like this: The Japanese make many fuel-efficient cars, and if their production declines, more buyers will look to used models.

The cost of a used Toyota Prius hybrid jumped 40 percent at auto auctions over the past year -- and 15 percent in the last month.

Meanwhile, the disaster in Japan is starting to slow auto production, and not just in Japan. Japanese plants in the U.S. depend on Japanese-made parts. So do the Big Three American automakers, although to a much lesser extent.

"All those parts on ships are in the process of being delivered. But there are no more ships behind them," said Mike Wall, analyst at IHS Global Insight. Parts shortages will grow worse this month and in May, he said.

The supply disruptions arrived as U.S. auto sales were already staging a nice recovery, with sales up 17 percent in March. General Motors was reducing sales incentives before the quake struck, said Wall. He and other analysts expect that other automakers will do the same.

The result would be less bargaining power for consumers, who will end up paying more.

"As automakers look at fewer vehicles in their supply chain, they're going to look at their incentives and say, 'This doesn't make sense,'" said Wall.

Good deals are already disappearing among new fuel-efficient models, according to the car-shopping service CarWoo.com. Based on 15,000 transactions since January, CarWoo reports sharp increases in the price new car dealers are offering on the most fuel-efficient cars, such as the Prius, the Civic Hybrid, Toyota Yaris, Hyundai Elantra and Chevy Cruze Eco.

In January, those cars were selling 12 to 14 percent below sticker price. After the gas price spike, most are going for 1 or 2 percent below sticker, and the Prius sometimes sells above sticker, says CarWoo vice president Myril Shaw.

An exception is the Ford Fiesta, which is still going for a discount.

"Ford is trying to win market share, because they can," says Shaw.

DISRUPTED OUTPUT

Honda cut production at its U.S. and Canadian plants by 50 percent through mid April at least, according to the trade journal Automotive News. Honda also suspended dealer orders for the Japanese-made Fit and Civic Hybrid. Mazda suspended orders for certain Japanese-made models, such as the Mazda3 and the CX-7.

Toyota predicted that it will have to temporarily shut its American plants. In Japan, Toyota plans to resume production at half capacity for nine days later this month before halting again.

American makers are feeling milder effects. Chrysler restricted overtime at some plants to preserve parts. Ford idled a truck plant in Louisville for a week. GM halted, and later resumed, production at a Louisiana truck plant.

Analysts aren't sure how long the disruptions will last, but most bet it will take about three months for the Japanese to regain normal production, and electricity shortages may hinder manufacturing even then.

In St. Louis, auto dealers say they've seen no shortage of new cars so far, but they're worried about the future.

"They're good to go for the next little bit," said Cloyd Barden, sales manager at Lou Fusz Toyota in Kirkwood.

How about in future months?

"Nobody's talking about it," he said.



Source: Copyright (c) 2011, St. Louis Post-Dispatch


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