The Used Car Crisis Grinds On, but That's Good News for Consumers

Can I sell you a used car? Increasingly, even if a car dealer might want to make that pitch, he's unlikely to have the actual used car. This is because there's currently a dearth of used cars coming onto the market, due the tremendous production slowdown during the financial crisis. And even though this sounds bad, it isn't.

Used cars aren't a deal right now
The reduced supply has made used cars almost as expensive as new cars in some markets. Under normal circumstances, buying a well-maintained used car is almost always a better deal. Modern vehicles are of much higher quality than they were in the past -- most will last for many years if taken care of.

So a two- or three-year-old used car has already had most of the initial depreciation shaved off, so buyers don't have to deal with having 15 percent of their vehicle's value evaporate as soon as they drive it home for the first time.

Unfortunately, people didn't buy or lease new cars in high enough numbers during the downturn. And the consumers who've now returned to the market often aren't prepared to buy a new vehicle. The classic supply-demand imbalance had bid up he prices on used cars.

How long will this take to resolve itself?
A while. The size of the U.S. auto market may only creep back to 12-13 million this year -- up, but not up substantially from the 10 million that was seen in 2010. It could take until 2014-15 before the North American market stabilizes at 15 million vehicles annually, which would put enough cars in the pipeline to satisfy used car desire.

Until then, buyers who are in the used-car market, at least initially, may be able to talk turkey with dealers to obtain a new car at a discounted price. Also, as CNN Money points out:

[W]hile this may be bad news for anyone looking to buy a used car, people who have leases that are about to end could benefit from the lack of supply.

Sergio Stiberman, CEO of LeaseTrader.com, said many dealers are offering deals to buy people out of leases early to try to replenish the supply of used vehicles.

Stiberman said many consumers with leases that are about to run out will be able to buy the vehicle at a price that was spelled out in their original contract, and then turn around and sell it or trade it in for more money.

Still, it's uncommon for buyers to get this kind of leg up on dealers. But the used car crisis, while it lasts, may give them opportunity to do just that.

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