Car Shoppers: Better Prices Expected Down the Road

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After months of rising used-car prices, drivers are getting some relief, with “previously loved” models expected to get cheaper in the near future. As for consumers in the market for a fuel-efficient new Japanese import, it looks like they’ll have little choice but to pay top dollar—now and for a looooooong time to come.

The most recent report from National Automobile Dealers Association (NADA) anticipates an across-the-board drop of 3.5% to 4.5% for used car prices in July, compared to June. A decrease in July would be the continuation of a trend: June used car prices were down 1.6% compared to May, with prices for used compacts and midsize cars dropping 2.5% and 2.8%, respectively.

The falloff in prices for used cars, and for small, fuel-efficient used cars in particular, comes partly as a result of falling gas prices. Used car prices tend to mirror gas prices, with demand for used vehicles increasing as family budgets are pinched by the cost of pricier gasoline. When gas prices plummet, on the other hand, like they have lately, used car prices tend to do the same.

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Used car prices rose month after month in early 2012, hand in hand with rising gas prices. Recently, though, the trend has reversed, and it’s expected that gas prices, as well as used car prices, will keep declining. Months of strong new-car sales also may be bringing used-car prices down, as new car buyers tend to trade in their old vehicles, resulting in a much-needed increase in the supply of used cars. More used cars means that dealers will be more eager to part with them, even if the cars don’t command prices they did earlier in 2012.

Bear in mind, though, that even with the ongoing drops in used car values, pricing is likely to “remain at historically high levels through the end of the year, ” according to a NADA analyst.

Another category of vehicle expected to be at historically high levels for some time to come: new Japanese cars. Analysts from Kelley Blue Book report that due to the rising value of the Yen compared to the U.S. dollar, Japanese automakers are reducing the number of some vehicles exported to America because they aren’t generating strong profits. In some cases—Honda’s Fit and Insight, as examples—Japanese vehicles have even been selling in the U.S. at net losses due to exchange rates.

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The takeaway for consumers is that new Japanese cars that do make it to U.S. dealerships are unlikely to be discounted much. The Honda Fit has been selling for 97% of the sticker price, compared to 95.5% off of MSRP for the average subcompact.

Considering that the Yen is “expected to remain elevated for the foreseeable future,” writes Kelley Blue Book analyst Alec Gutierrez, drivers should anticipate high pricing and minimal discounting at Honda, Toyota, and Nissan dealerships. When might prices for these automakers retreat? Might be quite a while, according to Gutierrez:

Small cars will remain a priority for consumers as gas prices are expected to continue to rise in the years to come. If the Japanese want to maintain their leadership position in these segments, they will need to increase production in the U.S. to ensure that they can compete on price, a process that could take several years to implement.

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Brad Tuttle is a reporter at TIME. Find him on Twitter at @bradrtuttle. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.

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