Low Used Car Prices Causing Benefits and Consequences for the Auto Industry

Used cars are an easy choice for many drivers because of their affordable prices. However, studies show that used car prices are decreasing beyond their normal price ranges, creating benefits for budgeting customers but causing potential problems for car dealerships.

After years of problems within the automobile industry, recent statistics show that sales are making a recovery. But in addition to potential economic benefits, this means that millions of used cars are beginning to flood the market, with many coming off lease. As a result, user car prices that reached exorbitant levels after the recession are declining just as experts are beginning to speculate that new car auto sales may be peaking.

These changes could have a number of benefits and consequences for car owners and potential buyers in the United States: on one hand, by flooding the market with affordable used cars, customers will have a greater selection of attractive, high quality vehicles when it comes time to make a purchase. Unfortunately, because lease rates are based on predicted resale value, lease payments on new cars will rise. Likewise, trade-ins will likely become less valuable, increasing the chances that a prospective buyer will have to take out a larger loan for their new car or eschew the sale.

“People are looking at vehicles that are a bit older rather than newer here in Alaska, I believe this will be a trend over the next few years. What dictates the market here determines what people can buy — its all about the willingness of the banks,” says Jared Scott, Manager of Vito’s Auto Sales and Rentals.

Currently, new car sales are targeted to break 16 million this year, following an all-time low of 10.4 million in 2009. Meanwhile, although fewer trade-ins caused used car prices to increase dramatically in the past, the average used car now sells at a franchised auto dealership for an average of $10,883, down 1.6% from last year. August marked the fourth straight month of declining wholesale costs, but this trend is slowly leveling off. In response, experts have called worries of free-falling prices “premature”.

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