Why used car prices are at a four-year low

    8:40 PM, Nov 13, 2013   |    comments
    Used car sales. (Photo: Getty Images)
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    (USA TODAY) - As new-car buyers flood showrooms, used car prices are hitting a four-year low, according to an analysis released Wednesday.

    Prices may go even lower next year as more new-car buyers trade in their jalopies and more used cars with expiring leases show up on lots.

    The average used car sold for $15,617 at a franchised dealership in the third quarter, the lowest since the same quarter in 2009, when they averaged $14,808, according to the analysis by car-pricing website Edmunds.com. Prices have been easing for most of the year, and the third-quarter average was down 2.8% from the second quarter and 0.9% from the same quarter last year.

    Another used-car price watcher, Tom Kontos of Adesa Analytical Services, noted a tiny uptick in wholesale prices in October, but says the overall trend is down.

    Why prices are dropping:

    New-car sales. Auto dealers' new-car sales are on track to exceed 15 million. While not quite up to the boom years of a decade ago, the bonanza has meant a flood of trade-ins. To move them out, dealers have cut prices. "New cars automatically bring some used cars out of the woodwork," says Kontos.

    Off-lease cars. By 2010, cheap lease deals abounded, and dealers were eager to get those new cars into the hands of recession-weary drivers who were hesitant or just couldn't make the purchase price payments. Those leased cars are coming back to be sold as used cars.

    "There was a big rise in leases," says Richard Arca, senior pricing manager for Edmunds.com. Now, "we're seeing the result."

    Better economy. Even drivers who held out during the recession, keeping their old cars running, now are ready to throw in the towel and buy a newer, used car. Lower unemployment rates and an overall better economy make it easier to buy a used car, plus auto loan rates are still low, and lenders are lending.

    Arca cautions, however, that used-car prices still aren't as low as they dipped a decade ago. Prices of some late-model used cars still are so close to the price of a new car that it might make more sense to buy new, he says.

    Kontos notes, too, that there hasn't been "a dramatic decline in used-car prices or a flood of used cars on the market" because of the gradual nature of the recovery.

    Look for more declines he says.

    "The used-car market, in terms of pricing, is poised for further softening," Kontos says, He predicts even more cars will be pouring into the used-car market, making them all cheaper.

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