September 2010

The Car Guy Editorial

Looking ahead, I see no relief in sight on used car values, which is great if you have a trade-in, but not so great if you have traditionally bought pre-owned vehicles, which is the case with yours truly. I have bought more cars in my lifetime than most, and only one of them has been brand new. When I was 18-years old, I went to see one of the Smokey and the Bandit movies, and fell in love with the new Pontiac Trans Am. I left the theater and went straight to a dealership and bought one.
Otherwise, every purchase has been a pre-owned vehicle and I have always felt like I saved a ton of money. Those days may be over however. You see, most people trade their cars between three and four years from purchase.   So throughout the 1994 to 2007 time frame, when 15 million to 17 million or so vehicles were sold new those years, three to four years down the road, the majority of those cars came back to the used car market. 
So today, we are seeing used vehicles coming back into the market that were sold in 2007, a year in which 16.5 million new vehicles were sold. Normally this would be enough new car sales to give the U.S. plenty of used cars to meet demand. But suddenly people are keeping their cars longer, thus the shortage.
Then in 2008, things started to unravel. The economy slowed down, gas went to $4 per gallon or more, and one source of used cars dried up quickly, and that is rental cars. Rent car companies struggled badly as business and pleasure travel was way off. Instead of selling their rental fleet every few months, Hertz and the others started keeping cars longer to save money and Ford, GM, and Chrysler-in crisis themselves-quit selling cars to the rental car companies because that sector of business was not profitable. This had a very adverse affect on the late-model Factory Certified used vehicles, thus shortening supply and raising demand and prices.
It was also 2008 when new vehicle sales dropped to 13 million and in 2009 all the way down to 10 million. So as we look down the road, those much lower new vehicle sales numbers will make the used car shortage only worse, and prices remain high. We have also not yet seen a return to buying cars by the rental agencies, which also affect used car prices.
Given the new vehicle sales numbers for 2008, 2009, and now 2010, the outlook for a worsening used car supply in the future is imminent. You can’t manufacture used cars to increase supply.
I may have to rethink my strategy of buying current year or one-year old used vehicles soon, there just is not enough price difference between them anymore and I don’t see it getting any better.
 
Jerry Reynolds is the Host of The Car Pro Show heard Saturdays on News/Talk 820 AM and 96.7 FM, WBAP in North Texas, as well as stations in Houston, Austin, San Antonio, Los Angeles and Sacramento. Jerry is a member of the Texas Auto writers Association and is the former Owner of a large chain of automobile dealerships. Jerry can be contacted at www.carproshow.com