Used Car Prices Up as New Car Sales Sour

As Jim Henry has recently pointed out on BNET Autos, after the lift from the federal Cash for Clunkers program car sales are going sour again. General Motors posted a 45 percent year-to-year retreat in September, and Chrysler dropped 42 percent. Only Ford, which has the best new products, is showing relative strength—a mere five percent decline. And Ford’s third quarter sales actually rose five percent—the company’s first quarterly increase since 2005.

Ken Czubay, a vice president of sales, praised Ford’s “strong lineup of high-quality fuel-efficient products, frankly the freshest product line in the industry….Instead of leaving us vulnerable to the peaks and valleys and dramatic segment shifts in the industry in the third quarter, our broad balanced product line delivered sales and share gains from all corners.”

Among foreign automakers, the Korean twins Hyundai and Kia posted 27.2  and 24.4 percent sales, and BMW saw a 3.6 percent jump. Japanese car sales are still reeling (Honda was down 20 percent, for example), suggesting that as Korea and China climb, the Japanese economic miracle is definitely tarnished.

But one car sales niche is showing strength—used vehicles. As Joseph White notes in the Wall Street Journal September 30, Americans are getting used to tightening their belts, and that means they’re buying older cars. The phenomenon has actually pushed up used car prices—the Mannheim Used Vehicle Value Index is likely to hit a record later this month, says chief economist Thomas Webb.

It’s instructive to look at the performance of CarMax, the largest U.S. retailer of used cars in the U.S. with 100 superstores around the country. As the company was reporting six percent higher previously owned car prices (and this is one one area where people are still buying gas guzzlers), it was also proclaiming its seven-fold increase in net income for the second quarter ending August 31. Earnings went to $103 million, or 46 cents a share, compared to $14 million, or six cents a share, last year. Sales were up 13 percent to $2.08 billion.

Analysts, said Reuters, had expected the company to report 18 cents a share earnings on revenues of $1.77 billion. Needless to say, this set off a rise in CarMax’s share price. Cash for Clunkers got some shoppers into dealer doors in the quarter, and the company said, “While customer traffic in the second quarter remained slightly below the prior year level, it has steadily strengthened throughout the first half of the current fiscal year.”