Prices for used cars are tanking……much to consumers’ benefit. If you are interested in buying a car, it makes sense to consider buying used. In 2019, the average used car lost 17 percent of its value. In 2020, prices are expected to drop even further — and dramatically. The impending recession/depression along with intermittent quarantines throughout the year are crashing the used car markets. By mid-2020, we may witness the lowest prices for used cars in most of our personal lifetimes.
Hyberbole? Possibly not. In March, used-car sales dropped by 64% and prices fell by about 10%…..in just one month! With almost everyone sitting at home and tens of millions of people losing their jobs, used automobile sales have cratered. Ford and GM are looking for government bailouts. Rental-car companies that appealed to the Treasury Department and Federal Reserve for loans, tax breaks and other forms of support await a similar fate. Hertz Global Holdings Inc., Avis Budget Group Inc. and Enterprise Holdings Inc. all are trying to find ways to unload some cars without taking too big of a hit.
Auto companies’ in-house leasing businesses moribund. These companies are facing vehicles coming off of leases which are worth considerably less than they’d budgeted, meaning losses in the billions. Car rental companies also will get less money from selling down their fleet of vehicles, which are sitting idle amid a global pandemic that’s been catastrophic for travel. All of this is piling onto an already struggling used car market: Capital One published a report last year that the Tesla Model 3 was “wreaking havoc on the pre-owned luxury car market.”
In about three-four months, it may be an optimal time to buy a used car…..with one important exception! (we’ll get to that at the end)
So why have used car prices tanked?
In addition to the economic downturn, job loss, uncertainty and quarantine-fueled travel drop, there are a number of other economic factors impacting used car prices. Some of them include:
- Used car supply has more than doubled since 2012 and is set to rise another 25% over the next 2 years. In 2020, an estimated 12 million low-mileage vehicles are coming off leases inked during a 2014-2016 spurt in new auto sales.
- Extended credit terms: Auto loans are at record lengths and lease assumptions (residuals, money factor) are at record levels of accommodation. Too much consumer debt out there means fewer loans are being given for used cars…..and thus fewer cars are being snatched up by cash-starved consumers.
- The 2014-2016 new car boom: So many new cars were bought after the 2008 recession as a result of post-recession pent-up demand. Those cars are now being sold/traded-in adding to the used vehicle glut.
- Buyer tastes have changed: Over the last three years, buyers want SUVs or crossover cars. Back in 2014, the marketplace was much more heavily tilted toward passenger cars than it is today.
How Not to Get Taken By Used Car Scammers
If you buy a used car in the coming months, it is essential that you use a vehicle history report, such as VINCheck, a free database that allows prospective car buyers to check a vehicle identification number for flood or accident damage as well as whether it has been reported stolen. Other vehicle databases include CARFAX, Autocheck and the National Insurance Crime Bureau (NICB), Been Verified and VehicleHistory.com, the latter which is free. They typically report where the car was purchased, where and when any accidents where an insurance claim has been made, in addition to the registrations by state and the type of title for the car.
Beyond that, you want to check out the seller (do an online search for their name) and arrange to have an independent mobile mechanic inspect the car before you accept delivery of the car. If you are buying a car located in a different state or country, you are best protected by setting up an escrow account at a bank and direct it to not release the monies until you’ve received delivery of the car and have had it inspected.
Finally, beware of cars that are priced unusually low. The sellers might claim that price is so low because they need a quick sale, perhaps because they are moving, divorcing or being deployed overseas by the military. However, what’s really going on is that scammers will repost pictures of cars they find for sale online but modify details in the descriptions and set ridiculously low prices to lure in bargain hunters.