Some New-Car Shoppers Switching to Used

Demand for used cars has picked up, but that’s not necessarily good news for new-car demand, according to the used-car auction firm ADESA Inc.

New-car demand and used-car demand usually move roughly in tandem. Lots of new-car purchases mean lots of trade-ins. However, at this point in the business cycle it looks as if there is some substitution, where consumers who would normally buy a new vehicle are considering used vehicles instead.

At the same time, new-car sales are so bad, new-car dealers are trying to shore up profits by putting more emphasis on used-car sales, and that dealer-generated demand is halping to drive up used-car prices, said Tom Kontos, executive vice president of ADESA.

“In 1942, as domestic auto manufacturers ceased producing automobiles in order to shift production to ‘materiel’ for America’s effort during World War II, auto dealers were forced to focus on selling used vehicles and providing parts and service to keep their businesses afloat,” he said in a newsletter.

“With new vehicle sales on a per capita basis currently running at a rate similar to that of 1942, franchised dealers are once again focusing on used vehicles to support their operations,” he said.

Since October 2008, used-vehicle prices have been improving month-to-month, even though year-ago comparisons are still down, Kontos said. For instance, wholesale used-vehicle prices averaged $9,263 in January. That was a 2.7% increase over December, but 4.8 percent below the year-ago month.

Those numbers suggest that used-vehicle prices may at least have bottomed out, Kontos said.

The year-ago deficit has also been shrinking, according to ADESA. In October 2008, prices were down 11.3 percent from the year-ago month; in November, down 10 percent; in December, down 7.4 percent.