BUSINESS

Used car prices expected to fall

Michael Martinez
The Detroit News

Strong demand for the low supply of SUVs and pickups drove up the cost of used cars and trucks slightly in 2014, but prices are expected to come down this year, experts say, thanks to low interest rates and a glut of available vehicles.

Jonathan Banks, executive automotive analyst for the National Automobile Dealers Association's used car guide, predicts used prices will drop between 2 and 2.5 percent in 2015, after a 1 percent rise in 2014.

"As we look forward, we're looking at a very positive environment," Banks said. "Prices are going to be lower, the quality of the vehicles out there is really good, and interest rates are going to be fantastic."

Last year, car buyers paid an average of $11,878 for a 5-year-old used vehicle, NADA data show.

Those prices are expected to drop this year because inventory is increasing, thanks to more leased vehicles being turned in. Last year, about 3.2 million vehicles came off leases, NADA said, and it expects that number to grow about 1.9 percent this year.

About 25 percent of all used vehicle sales in 2014 were from leases, Banks said. That's the most since 1999. NADA expects a record number of previously owned cars and trucks will be available by 2017.

More leased vehicles are returning, Banks said. Interest rates are low — Experian Automotive said the average interest rate on a used car loan was 8.67 percent late last year — and new car values are rising, making leasing more attractive than buying.

And now, more dealerships are advertising their certified pre-owned programs — used vehicles inspected and deemed worthy to resell by manufacturers — giving buyers better-quality options.

"It's a great tool for the franchised dealers; it enables them to get consumers to get into the right vehicle at the right price," Banks said.

Keith McKinzie, general manager at Sonju Superstore in Minnesota, sells everything from Jeeps and Dodges to Buicks and Fords. He said the number of used sales at his dealership is rising. He's forecasting a double-digit used car sales increase at his dealership over 2014.

"You're going to be seeing more of these off-leases than we have in a long time," he said.

McKinzie said trucks and SUVs are hot, and he's getting an increasing used inventory from customers leasing new vehicles. Chevy Tahoes are particularly hot; they represent 3 percent of used car searches and 2 percent of his used car inventory, he said.

NADA forecasts prices for big SUVs will increase 1 percent over last year, and midsize and large pickup prices will climb about 5 percent — mostly because relatively low gas prices will keep those values higher.

McKinzie said he's getting more trade-ins because of robust new vehicle sales.

Automakers sold 16.5 million new cars and trucks last year — the most since 2006 — and after a strong January, forecasters expect 2015 numbers to be around 16.6 million this year.

"If you can get the hot product from the manufacturer, you're going to sell more new vehicles and take in more trade-ins," he said.

According to a recent AutoTrader study that surveyed more than 2,000 recent car buyers, 81 percent were open to purchasing a used vehicle for their most recent vehicle purchase. About 32 percent said they shop only for used vehicles.

AutoTrader says luxury cars, full-size trucks and midsize SUVs are the most popular used segments among buyers.

"The consumers have more choices than ever before," said Jared Rowe, president of AutoTrader.com. "We as an industry are better prepared to handle the remarketing challenge of this inventory that's coming back. I couldn't be more excited about the next five years."

mmartinez@detroitnews.com

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