Pre-owned vehicles: Model Year 1999 to 2008
The values of used cars (including light trucks, SUV’s and CUV’s) within the Canadian marketplace have been experiencing a series of fluctuations since the spring of 2009. The following ten (10) conditions have caused price and value volatility to most pre-owned domestic and import product with a stronger emphasis on General Motors and Chrysler vehicles.
- The overall economic climate within North America
- The lack of cash to finance leases on new vehicles (GMAC and Chrysler Financial)
- The higher risk factors for bank financing (unemployment and higher personal debt load)
- The bankruptcy of GM and Chrysler
- The dealership inventory challenges following the bankruptcies
- The involuntary closure of several new car dealerships
- Low interest rates
- Low fuel costs (compared to last year)
- Higher unemployment
- Higher pent up demand for vehicles
October and November also brings a “New Year” into the new and used car marketplace. Although carmakers have become quite adept at introducing new cars in the middle of a model year, October marks the official beginning of the 2010 model year. When you combine the model year change (a very real factor) with the involuntary closure of several new car dealerships (to be explained in the paragraph after the next one), expect a bout of “price confusion” in the used vehicle arena specifically with the used vehicles currently for sale in the dealer inventories.
Used domestic vehicle pricing typically adjusts twice at this time of the year: Once around Thanksgiving (this year the week of October 5th) and on or about November 1st. Two price adjustments are relatively normal as it spreads the impact of price changes throughout the month which allows dealers and sellers an opportunity to work with the adjustment and balance their respective inventories. Each price adjustment is typically around $1,000.00 per bout however some dealers adjust according to their specific market (a little higher or a little lower than the $1,000.00).
Close to 300 new car dealerships either voluntarily or involuntarily closed down their new car sales operations this past summer. Most GM dealerships that “shut their new car doors” were forced to do so by the manufacturer in an effort to cut costs and (believe it or not) reduce the amount of “backyard” competition amongst their own dealer-body. Aside from the further blow to our already high unemployment statistics, these closures will cause the sprout of numerous “used vehicle super-stores”. Most new car dealerships consist of a 4 to 5 acre plot of land consisting of a main building (which houses a vehicle showroom, a mechanical service facility, a parts department and office space) and several parking spaces for vehicle display. These facilities do not have many other uses besides the display, repair and sale of vehicles. As a result, many – the majority – of these former new car entities are going to become exclusive used car sales operations. The used vehicle inventories of these dealerships (now used vehicle super-stores) will, at the very minimum, double, triple, maybe even quadruple.
This very real but temporary increase in demand for additional used vehicle inventory (by these dealerships) will cause a significant price increase in used vehicles at the wholesale/supplier level until the inventory needs have been met.
The big question that remains unanswered – and will be answered in the month of October, November and December 2009 – is how price responsible will these new “super-stores” behave. In other words, given the fact that these dealerships had to pay a premium for their inventory; will they price their product aggressively and competitively (which causes retail price reductions) or will they enact an inflationary price point to offset the premium that they had to pay at the wholesale level....the jury is out.
The price of used vehicles through the month of October and November 2009 will continue to be volatile but will still experience some of the trends typical for this time of year. As a result, expect slightly lower pricing on 2004 to 2008 used vehicles and stable pricing on 1999 to 2003 used vehicles. Expect many dealerships to have conflicting pricing policies so be certain to examine all the alternatives with respect to vehicle selection.
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