How High is Up for Used-Car Prices? We May Be There Now

(MoneyWatch)  New-car sales could get a boost from an unusual quarter, which the market hasn't seen in a while: used-car prices are so high, they're starting to bump heads with new-car prices. That may motivate some used-car shoppers to make the jump to new cars, since the price difference has shrunk.

That's according to Tom Kontos, executive vice president, customer strategies and analytics for used-car auction firm ADESA.

"Strong new vehicle sales in September support the thesis that some car shoppers are gravitating towards new vehicles when faced with a choice of paying relatively high prices for used cars versus affordable new vehicles, as long as financing and available inventory are not prohibitive factors," Kontos said in a written report this week.

According to ADESA, used-car prices are down a bit from record highs in April, but they're still higher than a year ago. A seasonal decline is to be expected this time of year, in part because the fall is the strongest season for new-car sales. However, used prices have a solid floor beneath them that will keep them from falling far, ADESA said.

That solid "floor" is supply and demand. The drop in new-car sales in 2008 and 2009 means fewer low-mileage used cars today, and therefore a lower supply. At the same time, demand is slowly recovering as the U.S. economy recovers. Lower supply and higher demand spell higher used-car prices.

But as Kontos pointed out, there's also an upper limit on used-car prices, and that's the point where relatively new used cars start competing with discounted new cars.

ADESA reported that the average wholesale price for a used vehicle in September was $9,830. That was down 1.7 percent from August 2010, but 1 percent higher than September 2009.

In the latest cycle, used-vehicle prices bottomed out at an average of $8,628 in October 2008, the firm said. Values fell the most for used trucks, since on top of the recession, gas prices had spiked. Today, used truck prices are up percentage-wise more than used cars. For instance, prices for used minivans were up almost 8 percent in September from a year ago. However, that's because used trucks had more ground to make up.

Related:

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