A flood of previously owned cars is about to hit the market and drive down prices. Here's what to look for.
If you dream of finding a nice used — but not abused — car at a reasonable price, it is just about time for you to shop.
Auto dealers expect a flood of used cars – about 800,000 – to come into dealerships this year as a record number of leases mature, according to NADA Used Car Guide, a Division of J.D. Power. The influx of such “pre-owned” cars – adding about 33 percent to what is currently available — is expected to continue through 2018.
That influx is expected to drive down used-car prices to more reasonable levels from previous highs. Used-car prices hit a record high in the second quarter of 2015, climbing 7.6 percent year-over-year to an average of $18,600, according to a new study by car shopping site Edmunds.com.
“The key factor driving all of the trends in used-car sales today is the popularity of leasing, which is bringing younger and higher-quality used cars back to the market,” said Jessica Caldwell, Edmunds.com director of industry analysis in a press statement. “With a record number of lease terminations expected in 2016, for the foreseeable future there certainly will be no shortage of supply to meet the growing demand for used cars.”
NADA estimates the prices of used cars will fall 2.5 percent annually for the next three years. That would be down 7.3 percent in 2018 from 2015. This drop would mean that used-vehicle prices would be at their lowest point since 2010.
Why you should buy used
You already know that low mileage, good condition pre-owned vehicles at reasonable prices save you money for several reasons — not least of all because they don’t suffer the sharp depreciation that new cars incur the moment they are driven off the lot.
And there’s even more good news this year because the off-lease and fleet vehicles that will soon be for sale are expected to have low mileage and a history of proper maintenance. In fact, some are from corporate fleets. That means many qualify for automaker’s CPO (certified pre-owned) programs and come with detailed inspections and extra one-year warranties, reported NADA.
So what can you expect to find on the lots?
Some of the best deals will be on subcompact and compact cars as well as some compact and midsize SUVs.
Lease maturities for compact SUVs will more than double (a 116 percent increase) in 2017, according to NADA. Off-lease supplies of vehicles will also grow for midsize SUVs (57 percent), compact SUVs (44 percent) and midsize cars (23 percent).
Based on Forbes’ list of the most unbeatable car leases in 2013, shoppers can expect to find an array of pre-owned models ranging from Audi A5 to Chevrolet Corvette and Honda CRV.
It’s a fair bet a hefty number of pre-owned Toyotas and Chrysler will also be on the market. In 2014, Automotive News reported those two automakers saw a strong shift in two-year leases. Ford and Nissan both saw a shift away from such short leases during that time.
But don’t expect everything to be sold at rock-bottom prices. Perennial favorites, such as the Chevrolet Corvette and Ford’s F-150 trucks, will likely retain their value and sell quickly due to demand.
Luxury will be in the mix
Besides Lexus, which is owned by Toyota, there will be plenty of other pre-owned luxury cars on lots, auto analysts predict.
Mercedes-Benz USA is among the automakers that expect a flood of off-lease vehicles, remarketing manager Stephen Nicholson told Automotive News. Mercedes-Benz dealers will get first crack at selling those cars, but Nicolson said the volume would likely force the automaker to sell off-lease vehicle through non-Mercedes dealers.
“We’re going to have something like 200,000 units coming back at some point,” Nicholson said according to Automobile News. “We’ve been leasing at 40, 50, 60 percent for a long time.”
And BMW will surely be in the pre-owned mix, Industry analysts reported BMW held onto the top spot in U.S. luxury car sales last year because of the incentives it offers dealers to buy the latest models for their fleets of loaner vehicles, reported Automotive News. As new models roll in the automaker will surely nudge dealers to swap out older models.
Automakers and dealers are expected to pull out plenty of stops to move the pre-owned cars.
Although many deals are not yet public, one major example began this month. GM started a new sales program for its factory-owned used cars.
If you’re interested in what GM reports are more than 30,000 such pre-owned Chevrolet, Buick, GMs or Cadillac can click here. The cars have fewer than 37,000 miles and come with extended warranties. The vehicles are company owned, are coming off lease or are coming from rental company use.
The automaker said the program also includes a three-day or 150-mile exchange, three-month trial of OnStar’s Guidance Plan and come with roadside assistance and free transportation during the warranty.
Before you buy
It’s easy to get caught up in the excitement of buying any car, but it’s especially important to go through these steps when buying a used car.
And don’t forget these two additional steps:
- Compare finance rates. Sometimes finance rates for used cars — depending on a host of variables including the buyer’s credit score — are much higher than for new cars. Also, some new cars are offered with attractive rebate offers. Don’t forget to factor in all of the specifics.
- Calculate depreciation. If you’re tempted to buy a new car instead of a used one, be sure to factor in depreciation costs. Kelley Blue Book has a guide that will help you determine the true cost of your purchase. And check out “8 Ways to Get a Good Price on a Shiny New Auto.”
What’s your experience shopping for used cars? Share with us in comments below or on our Facebook page.