Wes Moss: Used car prices through the roof

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here Monday mornings.

Wes-Moss-032011-USE-THIS-VERSIONA perfect storm has been brewing in the used car market. Demand for pre-owned cars currently far outstrips supply, and that’s driving prices through the roof, especially for compact and more fuel-efficient vehicles. This time last year a three-year-old Prius sold for about $11,700. Today a three-year-old Prius would cost you $17,750 — a $6,050 jump. WSB auto expert Adam Goldfein and I agree that these are the reasons for the skyrocketing price of a used ride:

  • During the recession vehicle sales in the U.S. plummeted from more than 16 million new cars a year to less than 10.5 million. So if you’re shopping for a three-year-old car today, there are fewer of them out there.
  • Similarly, leasing, which made up almost one-third of the new car market before the recession, fell to a trickle in 2008 as car companies grew tired of taking a beating on lease returns. Fewer 36-month leases in 2008 means fewer three-year-old off-lease cars available today.
  • Because of the recession and higher gas prices, we’re driving less. That means less wear-and-tear and fewer accidents, which means we’re able to keep our cars longer. Also, cars in general are just built better today, so they last longer.

What’s the best way to navigate the current auto market?

First, find out what your current car is worth. Use vehicle pricing websites like Kelley Blue Book, NADA Guides, and Auto Trader to get a sense of your car’s value before you contact a dealer.

If you’re looking to get out of a lease, find out what a dealer would pay you for the car. The residual value of your car is the pre-determined “end-of-lease” value placed on the car in your contract. Thanks to market factors described above, your vehicle may be worth more than its residual value. Let’s say your car has a residual value of $15,000, but Kelly Blue Book determines that it’s worth $17,500 on the open market. Chances are you can find a dealer to pay you more than the residual value.

The most economical way to buy a car is to buy something three or four years old and drive it for at least 10 years. However, if you are frustrated by high used car prices, leasing might be a better option. Because residual values are being set higher, due to the surge in used car prices, lease payments should come down. Here is a list of what leasing deals looked like in April.

Used pickups and SUVs have dropped slightly in value from a year ago as consumers have been looking for more fuel-efficiency. But be careful before buying the gas-guzzler of your dreams. While gas prices are moderating — we could see gas under $3.25 a gallon before the end of the summer – over the next several years, prices are probably headed up.

– By Wes Moss, for Atlanta Bargain Hunter

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28 comments Add your comment

[...] Atlanta Journal Constitution (blog) [...]

Mark

July 4th, 2011
7:23 am

Dennis

July 4th, 2011
7:40 am

Makes life tough for a used car dealer.

Destin Dawg

July 4th, 2011
7:46 am

we’ve been buying used high line.. like BMW Porsche.. 3 or 4 years old.. preferably CPO.. for CA$H.. last 30 + years.. saved thousands.. just think sales tax, tag, insurance, costs on a new car ???

FBR

July 4th, 2011
8:39 am

Mr. Moss has some good points, but he misses the most important one—-Don’t ever, under any circumstance, have ANYTHING to do with a dealer when buying or selling an automobile!!!!!!!

guy

July 4th, 2011
8:58 am

FBR,
What makes you say what you said about dealers?

katz

July 4th, 2011
9:06 am

It makes no sense to buy a new pick up truck if you drive under 5000 miles/year. My $2500 ‘01 gets 15/18mpg, the new ‘11 gets 16/22, costs over $25,000 with taxes, and costs three times as much to insure.
As for cars,our ‘97 civic cost us $4500 in 2001. It gets over 30mpg and costs very little to insure and maintain. A new ‘11 civic costs $20,000 and doesn’t get any better mileage!

As you drive more miles, the cost of the car becomes a smaller part of the overall cost per mile. If you are driving 50,000 miles per year, then the newest highest mileage, most comfortable c=vehicle you can find makes a lot of sense…. But it may make more sense to move closer to work. $400/week in commuting expense can cover a LOT of mortgage…especially with the deals around these days.

NorthGaDawg

July 4th, 2011
9:27 am

guy,
One thing FBR is referring to, especially on the buying side, is not only the higher prices, but the fees that a lot of dealers charge. The big dealers are the worst. They have $300-400 or more fees called “doc” fees or paperwork fees, fees for fabric protection and crap like that on new cars that you can do yourself for a fraction of the price, and other miscellaneous things. There are pros & cons to buying from either a dealer or individual. It really depends on how much you know about cars

Doug

July 4th, 2011
9:28 am

Let’s don’t forget the bi-partisan decision to destroy a HUGE number of perfectly good used cars under the wasteful “Cash for Clunkers” nonsense! That has to have affected the price of used cars by severely cutting the supply.

Just Sayin'

July 4th, 2011
9:32 am

Destin Dawg, you’re smart, that is the way to do it!

Fatwa Arbuckle

July 4th, 2011
9:35 am

I find it peculiar Mr. Moss made absolutely no mention of “Cash for Clunkers”, which resulted in the destruction of more than 690,000 older vehicles which – by the program rules – had to have been registered and insured continuously for one year prior to the trade-in and in driveable condition.

Charles

July 4th, 2011
9:36 am

Let’s not forget something else- more folk’s are not being able to buy cars due to no job or bad credit!

lugnut

July 4th, 2011
9:36 am

What makes you say that about dealers? Have you dealt with a dealer – any dealer – lately? The ads make you all warm and fuzzy – but once you get there you are “greeted” by an army of paperwrok handlers that only add to the massive costs you are about to incur.

Who do you think pays for all of that expensive real estate and brick and mortar? It ain’t the owner.

And oh by the way, if you have a problem with your car, what are the chances you actually get to talk to the mechanic that will try to fix it. Zero. Instead, you explain the problem to the so-called “service advisor” who for the most part know jack zero about cars, he scribbles down 3 words – usually “something wrong-fix” and you get your car back with a big bill and the problem still there. It would be a joe if it didn;t costg so much.

By the way, the dealers are behind this “modernization” of the GA income tax system which will require sales tax on car sales between private individuals. If it passes under this set of so-called Republicans, then join the protest – but your car form an out-of-state dealer. Yes, you still have to pay the sales tax, but you deny the forces behind the law change their unjust rewards.

One more thing – the best mechanics never ever work at a dealer.

theTruth

July 4th, 2011
9:53 am

Whenever a republican is involved there will be a disaster.

inoitall

July 4th, 2011
10:06 am

Cash 4 Clunkers wasn,t mentioned because it did absolutely NOTHING!!! A few of the junk vehicles were scrapped but guess what happened 2 the decent vehicles????? THEY WERE RESOLD!!! I am in the auto industry telling you what the truth is, NOT what i read in the media or from some blog.

CarMD my best friend

July 4th, 2011
10:30 am

It is so true about, “not having your car worked on by the dealership.”. I have a DodgeCharger. Went to the dealership because the infamous “check engine light” came on. Waited for a whole hour. The mechanic supervisor came into the waiting room and called me up. He proceeded to tell me that my problem would cost $1,153.52. I politely told him to lower the hood on my car and I will think about it. They had already stiffed me for $100.00 just to hook it up to the machine. To make along story short, I ordered a CarMD. The little machine that you can hook up to your car, like AUTOZone does. Well I end up getting the part and taking it to one of our neighborhood mechanics. Total price $128.00.

Fred

July 4th, 2011
10:51 am

That’s right. Cash For Clunkers did NOTHING. For the nation or the economy. It did play favorites just as the fascists in the Federal government love to do and are so good at.

Otherwise, it was just a moronic, misguided, Progressive-minded leviathan boondoggle. Like Vietnam and the War on Poverty. The Founding Fathers are rolling in their graves on this 4th of July.

Use Craigslist.

bob coley

July 4th, 2011
11:22 am

Bought my preowned auto from car connection of n ga in cumming and was pleased with the way i was treated. Not all used car dealers are unscrupulous.

The Big Bopper

July 5th, 2011
9:21 am

Financial planners don’t know anything about used cars.

I don’t take any that seriously.

Black and White Smiley Faces ☺☻

July 5th, 2011
9:21 am

First!!

Lame.

Crystal Knowitall

July 5th, 2011
10:49 pm

@

This article has nothing to do with the real housewives of chicago!

@

Sam

July 5th, 2011
10:55 pm

Interesting.Thanks.

the truth...

July 6th, 2011
12:17 am

theTruth

I knew you were a phony, imitation, plagarist and I should have know you were a lying dog Democrat….you voted to turn Casey Anthony loose too didn’t you????

I see you over on the Braves blogs using my name as well and I am about sick of it…so if you continue my cousin Vinnie is going to have a “talk” with you…get it?

And if that doesn’t wake you up my Uncle Bill O’reilly will work you over…

Knock It Off

Kars

July 6th, 2011
8:22 am

FBR – you CAN get a good deal from a large dealer. I recently purchased a large SUV as a 2nd vehicle, and by taking my time and passing on several good ones, I got one from the dealer BELOW Loan Value. On top of that they put on new tires and did a few repairs at that price. I shopped the local sellers and they were even higher than the dealer!!

The key is to check your emotions at the door and be willing to walk away. If you “Gotta” have you are going to pay TOO MUCH!!!

THE truth

July 10th, 2011
9:20 pm

I wonder when the used car market will go back down?

Mister Christopher

July 10th, 2011
10:41 pm

I’m just glad the Obama administration’s “Cash for Clunkers” program had nothing to do with this.

Mister Christopher

July 10th, 2011
10:43 pm

By destroying a quarter’s worth of trade-ins in three weeks and permanently taking them off the market, the Obama administration has forced an artificial inflation by supply restriction. Moreover, they did so by subsidizing new-car sales that would have occurred anyway, eating up three billion dollars in taxpayer money.

In other words, the White House spent $3 billion to make used cars more expensive for working-class families. Nice work.

Jackson

July 11th, 2011
4:37 am

Everything is ALWAYS Obama’s fault. Good grief. New car prices too high? Obama’s fault! Used car prices too high? Obama’s fault! He’s a Communist! An arsonist! A typist! A manicurist! Some of you people are just stupid as hell.