Used-Car Market Profits from Carmageddon. For Many Americans, New Cars Cost Too Much

August wholesale auction price index hits record after longest series of year-over-year price gains since 2001.

Used-vehicle prices at wholesale auctions around the US ticked up 1.1% in August compared to August last year, eking out a new record, according to the Used Vehicle Value Index by Manheim, the largest auto-auction house, running about 8 million vehicles through its auctions a year. The index is adjusted for mix, mileage, and seasonality, but not for hurricanes and the dynamics of the new-vehicle market.

In the fall of 2017 and 2018, used-vehicle wholesale prices went through extraordinary spikes, ascribed to the effects of hurricanes that were thought to have destroyed hundreds of thousands of vehicles, which pushed up prices. When those theories turned out to have been exaggerated, prices dropped sharply over the winter in both years:

August was the 31st month in a row of year-over-year price gains, the longest such period of year-over-year price gains since April 2001. It beat the 29 months of year-over-year price gains from May 2009 through September 2011 — the period that followed the collapse of the auto industry during the Financial Crisis.

The 2009-2011 price gains were at first powered by the basic bounce-back from the 2008 collapse and then by the “Cash for Clunkers” program that started in July 2009. Cash for Clunkers was supposed to boost new-vehicle sales to help bail out automakers. Congress had appropriated $3 billion in two stages, that were gone in months.

Car buyers were handed this cash to trade in their “clunkers” and buy a new vehicle. The engines of the trade-ins under the program were destroyed and the vehicle went to the salvage yard for parts.

As an unintended consequence, the program destroyed a portion of the most affordable used vehicles – another blow to lower-income car buyers. By removing this supply of affordable cars from the market, Cash for Clunkers caused prices up the entire scale of used vehicles to surge.

This chart of year-over-year price changes of the Manheim Used Vehicle Value Index shows just how extraordinary the current 31-month series of price increases is, having now beaten the 29-month series following the Financial Crisis:

After the effects of the Financial Crisis and Cash-for-Clunkers had worn off, wholesale prices more or less stabilized from mid-2011 through May 2017, when they broke out again, with the index hitting a new record in August 2019:

But the 1.1% gain in August was the smallest such gain in the 31-month series of gains, as wholesale prices appear to have bumped into resistance.

A big contributor to this slowdown in price gains was the near-flat average price (+0.2%) of midsize cars that earlier this year had seen blistering price gains in the 5% to 7% range.

Midsize cars and compact SUVs (SUVs based on a car platform) are the largest categories on the auction market, with compact SUVs having surpassed midsize cars for the first time in 2018, according to J.D. Power data. Based on current volume, each category will likely see over 700,000 vehicles being sold at auction in 2019.

But mid-size cars are dead on new-vehicle dealer lots. They’re at the core of what I call Carmageddon, the long-term collapse of “car” sales and the surge of “truck” sales. But “trucks” are SUVs, compact SUVs (which are essentially cars), pickups, and vans:

As new vehicles, midsize cars are too expensive for people looking for an affordable car and too small for the SUV- and truck-loving Americans that can afford to pay more. But rental car companies buy midsize in large numbers and about two years later, they dispose of them via auctions. Dealers buy them there, and put them on their lot as used vehicles, and that’s where Americans have been buying their affordable midsize cars.

Another factor in the slower year-over-year price gains in August was the performance of compact cars, the third largest category in the auction market. Like midsize cars, as a new vehicle, they’re at the core of Carmageddon. But rental fleets buy them in large numbers and two years later run them through the auctions, where dealers buy them to put them on their lots as affordable used cars.

Compact cars had had modest year-over-year price gains earlier in 2019, but in August, prices fell 2.7% from August last year:

The used-vehicle market is far broader than the auction market, and includes retail sales at franchised and independent dealers, including retail-sales operations by rental fleets, along with person-to-person sales of used vehicles. The used-vehicle market’s estimated sales volume in 2019 of about 40 million vehicles far outpaces the estimated 17 million vehicle sales in the new-vehicle market.

For the overall used vehicle market, and not just auctions, prices rose 2.1% through July, compared to the same period last year, according to the successor of the NADA Used Car Guidelines, which had been acquired by J.D. Power in 2015, and is now called the J.D. Power Used Car and Light Truck Guidelines. The report attributes the price growth in the overall market this year to:

  • New-vehicle prices that are now so high that they cause “affordability concerns”
  • Large numbers of late-model off-lease vehicles coming into the used-vehicle market
  • And “increased dealer demand for used vehicles,” based on increased retail demand for used vehicles because of the above “affordability concerns.”

In August, total used vehicle sales volume rose 1.8% year-over-year, according to estimates by Cox Automotive, which owns Manheim.

On the new-vehicle side, despite weakness in sales to retail customers, fleet sales have been strong so far in 2019, up 7.3%, according to Cox estimates. The large purchases by rental fleets will be a major source of supply for the used-vehicle market in the future, where more and more Americans are going to look for affordable vehicles after getting priced out of the new-vehicle market.

But these are the good times. And automakers are not amused. Read… Subprime Auto Loans Blow Up, Delinquencies at 2009 Level, Biggest 12-Month Surge Since 2010

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate “beer money.” I appreciate it immensely. Click on the beer mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

 

  101 comments for “Used-Car Market Profits from Carmageddon. For Many Americans, New Cars Cost Too Much

  1. alan dee
    Sep 10, 2019 at 12:53 pm

    Hi Wolf,
    I appreciate all your insight and efforts to keep all of us informed.

    Your thoughts on Ford?
    Thanks

    • Sep 10, 2019 at 2:19 pm

      Well, I actually like some of their vehicles. But their strategy in China and Europe has been a total dud, and in the US, they’re trying to figure out what’s going on — it’s just write-off after write-off after write-off. They have flagellated their arms with new “mobility” strategies that just burned a lot of money, instead of focusing on their core business. Now they’re finally being downgraded to junk. And these are STILL THE GOOD TIMES. So let’s see what happens when the economy turns on them. Until they can successfully wrap their brains around the issues and get something done that works, it’s not a go, no matter what the price, as far as I’m concerned.

      • Rat Fink
        Sep 11, 2019 at 1:13 am

        Ford needs an aggressive EV strategy so they can lose money on every EV they sell, but realize a big jump in their stock price because the current zeitgeist is that EVs are the way forward (even though they are not).

        It’s kinda how WEwork was a darling, until reality kicked in.

        • char
          Sep 11, 2019 at 7:37 pm

          Within 10 years all new cars models will use electric motors to drive the wheels. Why, because a gas engine + generator + electric motor is cheaper than a (more complicated) gas engine + automatic to drive the wheels.

          So the choice is between investing in electric cars or not being a car company in 15 years

        • Wander Lust
          Sep 11, 2019 at 8:24 pm

          Ford just put $500M into Rivian which looks like more an ‘aggressive’ EV strategy, it looks pretty strategic with their bread and butter coming from truck buyers.

    • Morty Mc Mort
      Sep 10, 2019 at 4:05 pm

      I sold both vehicles, and use Uber/Lyft or pubic, ehr I mean Public Transit. and a Rental in a pinch. Net savings approximately 25 thousand net after tax dollars! – How much would that be in Gross Pre-Tax earnings? 35 Thousand??? I would never go back.

      • Prairies
        Sep 10, 2019 at 5:47 pm

        12.5k – 25k /yr on a car just seems insane to me but at the top end it is the price of keeping up with your neighbours. I average 1000 to 2000 a year by buying cheap used cars with a few years of life left in them, I don’t look as cool as a movie star but I am not a movie star so why should I have to?

        • Old-school
          Sep 10, 2019 at 7:48 pm

          Me too. Maintenance, issurance, depreciation runs $1500 and gas about $1000. 2004 MBS430. Last two were Buick LeSabres. You can get them all cheap at about 10 years old.

      • Michelle Lowe
        Sep 14, 2019 at 11:00 am

        I have done the same. After car dealers unable do effect successful oil and tire changes. A new truck with no 1yr warranty, retroactive,, A recall-not recall-oops recall, my neighbor major insurer treating me like Cinderella, lie, after lie, then a $2000 repair, I did not need, I did the same. Not ideal, but SO MUCH less STRESS! And to my surprise so much cheaper!!!!

  2. 2banana
    Sep 10, 2019 at 12:59 pm

    Like every big government “it’s for the children” program, the negative “unintended consequences” vastly overwhelmed any good results for massive costs.

    “As an unintended consequence, the program destroyed a portion of the most affordable used vehicles – another blow to lower-income car buyers. By removing this supply of affordable cars from the market, Cash for Clunkers caused prices up the entire scale of used vehicles to surge.”

    • Just Some Random Guy
      Sep 10, 2019 at 1:47 pm

      Indeed. Pre 2010, one could buy a decent car for $2,000. Nothing fancy, but transportation from A to B. Today such a car doesn’t exist. $2K is junk. $5-6K is about the minimum amount you need to spend for a drivable car that doesn’t need thousands in repair.

      Cash for clunkers was basically a $4500 gift to upper middle class new car buyers, paid for by the poor. All in the name of saving Mother Gaia.

    • Zantetsu
      Sep 10, 2019 at 6:45 pm

      That’s a FEATURE, not a BUG. The idea was to get the polluting clunkers off of the streets, regardless of who might have benefited from continuing to drive them.

      It’s like all of the whining about increased prices from tariffs. Did these people not realize that increased prices are a feature of tarrifs, not a bug? They are supposed to make things cost more, with that money going to domestic producers instead of foreign producers.

      I don’t agree with the tariffs, but I am not surprised that they raise prices since that’s what they’re supposed to do, and find the (could it be faked?) surprise of other people to be puzzling.

      • Zantetsu
        Sep 10, 2019 at 6:47 pm

        Sorry to have gone so far off on the tariff tangent there, this wasn’t relevant to this discussion.

        The point I was trying to make is that the whole point of cash for clunkers was to stimulate industry (I have no idea if it did that) while also getting the older, less safe, more polluting vehicles off of the streets. Of course there is a cost to the latter, I am not sure why anyone would act surprised about that.

        • Otto Maddox
          Sep 10, 2019 at 10:23 pm

          It didn’t in the long run. Some economists from Texas A&M did the study a few years ago.

        • char
          Sep 11, 2019 at 7:43 pm

          In the long run all cars go to the junk yard so A&M was predictable

    • Clete
      Sep 10, 2019 at 8:06 pm

      And the worst cars stayed on the road, because poor people couldn’t afford the payments on a new car even if they got a few grand for the old clunker. We milked another 50K in miles out of the old beast because it gave us a few more years without a car payment when things were really sporty around 10-11-12-13/

  3. Just Some Random Guy
    Sep 10, 2019 at 1:44 pm

    THE CAR PAYMENT’S TOO DAMN HIGH!!! :)

    • Someone
      Sep 10, 2019 at 6:06 pm

      How about The Car Payments are too Damn High Party?

    • char
      Sep 11, 2019 at 7:45 pm

      The payment is not to high, people buy cars that are above their budget.

  4. Just Some Random Guy
    Sep 10, 2019 at 2:01 pm

    I don’t really buy the argument that new is too expensive. A well equipped Camry is $32K. Maintain it well and that car will last 20 years and 200K miles easily.

    Or sell it after 5 years and get $16-17K. On a per year basis, it’s pretty cheap transportation.

    • Sep 10, 2019 at 2:37 pm

      This is the sort of clueless stuff people with enough money say, because they have no clue what it is like to not earn enough money.

      • Zantetsu
        Sep 10, 2019 at 6:51 pm

        That’s unnecessarily harsh. The USA is one of the, if not the, cheapest places in the first world to own and operate a motor vehicle. Just Some Random Guy makes a good point that just about anyone with any earning power whatsoever can afford to buy a car if they can save a little and make regular payments.

        Or is that too much to ask these days?

        • Zantetsu
          Sep 10, 2019 at 6:55 pm

          And it doesn’t have to be a 32k Camry, I expect that JSRG picked that example because it’s a good example of a car that is likely to last a long time. You can easily get a cheaper car than a Camry at less than $20k new and JSRG’s point still holds.

          According to a google search, the cheapest new cars of 2019:

          Chevy Spark – $15,195
          Mitsubishi Mirage – $15,585
          Nissan Versa – $15,890
          Fiat 500 – $15,990
          Kia Rio – $16,195
          Ford Fiesta – $16,330
          Hyundai Accent – $16,880
          Toyota Yaris – $17,470
          Chevy Sonic – $17,595
          Honda Fit – $17,885

          Those are all MSRP – I expect anyone could get them for less than that with minimal effort.

        • drg1234
          Sep 10, 2019 at 11:36 pm

          Lol. Total fail. Not only do you not understand what Wolf is talking about, you don’t even understand what Just Some Random Guy’s point is.

        • alex in San Jose AKA Digital Detroit
          Sep 11, 2019 at 3:26 am

          Wolf’s not being harsh he’s being realistic. The bottom 2/3rds of the US population has no business owning a car and would not if it were not made a requirement to have one to get a job.

        • EchoDelta
          Sep 11, 2019 at 10:56 am

          It’s unattainable in present circumstances for most.

        • Prairies
          Sep 11, 2019 at 12:52 pm

          Most people can get approved for a car loan, that does not mean they can afford the loan. Of the sub 20k cars you list, not one can handle my daily commute without puncturing an oil pan or getting stuck in a snow bank depending on the season.

          Real world scenarios vary depending on the person, so JSRG is arguing from a point of privilege. I can’t remember the exact number but somewhere between 40-50% of US income earners are below 25k a year. How does one pay rent, buy food, keep heat and lights on, possibly raise kids, and afford 20k for a car loan – remember sticker of 15k plus taxes, plus insurance, plus warranty, plus, plus, plus comes out close to 20k on paper.

          I side with Wolf on this one, and I also can’t afford payments on a 20k car loan – so I might be biased.

        • Wander Lust
          Sep 11, 2019 at 8:41 pm

          @Zantetsu

          Gonna go with Wolf on the comment.
          I make more than enough to buy said $32k Camry but it doesn’t make any sense.
          The price on new cars is bananas.

          That new Camry would be roughly $600/month payment at 4.5% for 5 years. So about $800/month pre-tax or just under $10k/year. For most people, that ain’t cheap. (Gas, insurance, etc)

          Just bought a ’16 Subaru Legacy off lease for $15k.
          No brainer.

    • Old Engineer
      Sep 10, 2019 at 4:22 pm

      A better deal is a one year old Toyota Corolla (or Nissan or Mazda equivalent) bought from your local Hertz franchise. For $14K you get a one year old car with 14k to 20k miles and a good maintenance record. And as a rental it seldom carried anyone in the back seat. And the only add ons (no advertising fees etc.) are the 2% sales tax and the $35 registration fee. They are also good for 20 years, assuming you don’t get t-boned by a Suburban.
      But as Wolf says in his reply to your post, here in Alabama there are a lot of people who cannot even afford that. The market for 20 year old cars and trucks here is hot. Car lots offering cheap cars are springing up all over town. And thanks to the Japanese quality there are a lot of reasonably reliable vehicles available. I had a friend driving a 25 year old Civic with over 300K miles on it. Had to replace the odd part along the way, but the engine, transmission, and drivetrain were still functioning. And the people who buy these cars don’t have enough money or time off for vacations so not wanting to take the car out of town is not a big problem.

      • DawnsEarlyLight
        Sep 10, 2019 at 8:19 pm

        How well do new car dealers do, with the trade-ins for a new car? Do they make in profit significantly more than they give in credit for the trade-in?

    • daniel weise
      Sep 10, 2019 at 4:53 pm

      Man, you are all over the place,first you lament the high prices and then it’s cheap transportation. get back to us when you have it all sorted out! Jeezz

    • MCH
      Sep 10, 2019 at 6:53 pm

      Ok, I’m genuinely curious. Can you sell a Camry that is 5 year old with $60K on it for $16 to $17K?

      I have no idea about the pricing of such cars, but would be interested in knowing. That pricing seems a little high to me.

      • Old-school
        Sep 10, 2019 at 7:54 pm

        I am not sure if it is still this way, but in the south you could buy a new Toyota Tacoma and suffer very little depreciation for a few years if you kept looking new. If you had an old one you got tired of people asking if you want to sell it.

        • MCH
          Sep 11, 2019 at 2:06 am

          Interesting, I had no idea. I’m not too much into cars, all I know is that I have a Camry that is 16 years old, and with just over 200K on it. I’m going to see if I can milk another 50K out of it.

          If I believe KBB, this thing is worth about $3K right now. Who knew.

      • Cambric Finish
        Sep 10, 2019 at 8:31 pm

        Last year we sold my wife’s 2014.5 Camry Hybrid XLE to our daughter so I am familiar with that car. Looking at cars.com for mileage near 40k, the asking price by a dealer with warranty was $16,424 for the first such matching model I encountered. I am surprised at this price as we paid $28K out the door here in Silicon Valley five years ago. I never hear much about hybrid cars like the Camry, the implicit message being there is little interest in the technology and it has no future in an all electric world. I really liked this car as it easily got 43 mph in light commuter traffic (although my daughter gets significantly less). Also, it inexplicably got better mileage on road trips, where, if I tried to optimize mph (going around 60 mph) I got over 48 mph giving it a range of some 650 miles. I often wondered if you could replace every commuter car in Southern Cal with a hybrid like this how much gas and pollution this would save as cars crawl and idle on the freeway for hours but in turn were making optimal use of the battery.

        • MC01
          Sep 11, 2019 at 12:34 am

          The big problems with Honda and Toyota hybrids (everybody else is a Johnny Comelate caught by the “sudden” demise of diesel) are two.
          First is the price. When I bought our Toyota fleet in September 2016 they ended up being 40% more expensive than equivalent, non hybrid models from other manufacturers, and that’s after the not standard of the industry 12% rebate. A Toyota Yaris hybrid costs as much if not more one of those small SUV so popular nowadays and it’s a small car. Granted, they are far better engineered and put together and will last far longer but expensive is expensive.
          Second is they are unglamorous. Plainly put hybrids are work/commute cars, not fashion accessories or substitute for you know what. They appeal to company fleet managers, retirees looking for low running costs and reliability and other assorted cheapskates. The cool kids will buy whatever’s fashionable at the moment even if this means a Chelsea Tractor with high running costs and questionable build quality: that’s the reason we still have Alfa Romeo in the world.
          As Wolf always says, Ellon Musk made electric vehicles fashionable but fashion changes all the time and Tesla is not fashionable anymore if the parking lots near the Zurich stock exchange are anything to go by.

    • Petunia
      Sep 10, 2019 at 8:37 pm

      You can buy the low end Mercedes for $32K.

      • panatomic-x
        Sep 12, 2019 at 11:31 pm

        actually, the camry is a much more reliable car than the entry level mercedes. toyota’s routinely last 250k miles. the camry is a pretty fancy car. the corolla is cheaper and more popular worldwide. the yaris is actually built by mazda and not a true toyota.

    • Zantetsu
      Sep 10, 2019 at 11:49 pm

      JSRG’s point was that a new car can be cheap on a yearly basis if you buy a reliable car, keep it for a long time, and take good care of it. And also that good quality cars can have high resale value so if you’d prefer to own for some years and resell, that can provide good value as well.

      Wolf’s response was to say that it is elitist to suggest buying a 32k car in a discussion talking about affordability of cars for the poor people.

      My reply was to point out that much cheaper cars can be bought new if the 32k purchase price is really the entry barrier. Such a car can provide good value also if kept for a long time and cared for properly. With a 50% buy-in cost you only have to get 50% of the total mileage out of it to be as good a value as the 32k Toyota and that seems reasonable for the cars I listed.

      Then you jumped in with such a desire to lick Wolf’s boots that you’d rather insult me because I questioned Wolf than make any meaningful point.

      That’s a pretty fair summary. Do you have anything to add?

      • Zantetsu
        Sep 10, 2019 at 11:51 pm

        That comment was in reply to drg1234. This comment system is very difficult to navigate past about 3 levels deep.

        • Sep 11, 2019 at 1:41 am

          Zantetsu,

          Always add the name of the commenter you’re replying to.

    • Riverbender
      Sep 11, 2019 at 6:24 am

      Being my wife and I are not as young as we used to be decided that perhaps it would be in our best interests to obtain a vehicle with blind spot monitors, lane departure alert and rear cross traffic alert system. We settled on 2019 Toyota Avalon that also has a pedestrian alert system and a braking system to avoid a collision that are things that could prove to be invaluable in our future. The final cost was a bit above 29,000.
      We had a 2011 fully loaded Camry with the V6 and leather interior that seriously was practically impeccable, was only serviced by the Toyota dealer, had only 64,000 miles and some 5000 miles on a set of Michelin’s.I found that according to assorted sources that the car was worth anywhere from 10 to 12,000 meaning to me that it would be a great car to buy for someone on a budget. The original sticker price on the car was in the $32,000 price range but we paid about $25,000 for it. Basically we more or less paid about 1,750 per year to own it. The V6 and drive train is the same that was used in the Lexus ES that I have read is as bullet proof as they come and with standard maintenance should last 250,000 miles easily. I can see where you are coming from on that.
      The new car will probably be the last car we will buy in our lifetimes.
      We sold the Camry to our one son at a bargain price and he gave his extremely well maintained 2004 Corolla with 140,000 miles to a relative needing a car. That Corolla bought it new for about 12,000 meaning his annual costs of ownership was about 800 per year and I personally think there is a lot of life left in it for the new owner.
      My gist of this is there is a car out there for people of assorted budget constraints and when looking at some of them with a long term perspective may be a pretty affordable situation as you point out.
      However my neighbor just paid $82,000 for a new truck…but that is another story.

  5. Gian
    Sep 10, 2019 at 2:21 pm

    Interesting, I listed my 2016 Porsche MacanS on Auto Trader a month and a half ago without a single response, despite the fact it is clean as a whistle, under factory warranty and less than 18K miles on it. I drove it to a dealer this morning and sold it for $37K. Surprised a dealer would want it based on this article?

    • Sep 10, 2019 at 2:33 pm

      This article says that the used vehicle market is doing just fine. And that’s what you sold, a used vehicle.

  6. T.J., not the real tj
    Sep 10, 2019 at 2:27 pm

    Does anyone NOT think Cash for Clunkers II is around the corner?

    • Sep 10, 2019 at 2:30 pm

      It’s not even near the horizon. The auto industry collapsed during the Financial Crisis, with GM and Ford going bankrupt and with new vehicle sales plunging something like 50% from peak to trough. Now, new vehicle sales are down a few percentage points from the peak (2016), and the major automakers, except Tesla, are profitable. They can get through a regular downturn.

      • Endeavor
        Sep 10, 2019 at 2:58 pm

        They can get through a regular downturn.
        Probably, but they plan on producing and selling electric and hybrid SUV’s and pick ups that are bound to cost more than today’s product mix. It might be tougher sledding than expected with a large used car market stealing sales.

        • Sep 10, 2019 at 4:38 pm

          Endeavor,

          Yes, if EVs take off, the entire auto industry and its supply chains are in for a reckoning, and they know it, which is why they’re not in a hurry to make the switch.

          The problem is the technology involved (the IP) in the entire ICE power train, including emission control systems and engine management systems, software, and even manufacturing processes – they’re a core competency of automakers, and they control it tightly.

          But the core competency of an EV is the battery, and those are made by other companies. Electric motors too are made by other companies.

          This changes the competitive layout. It’s a lot cheaper and simpler to build an EV, except for the battery which is made by others.

          The manufacturing plants and supply chains for ICE power trains — for example, companies spent billions on developing 8-speed and 9-speed and 10-speed transmissions — will be trimmed down. And this core competency becomes less essential. This will cause considerable upheaval in the industry once EVs take off in large quantities.

        • 2banana
          Sep 10, 2019 at 5:53 pm

          EVs will take off….

          When PG&E gets their power grid modernized and well maintained to handle the enormous new demand from EVs.

          Oh, wait a sec….

        • Sep 11, 2019 at 1:00 am

          2banana,

          PG&E has HUGE excess capacity at night and would LOVE to sell more juice at night. At night is when most people charge their EVs; they plug it in at home in their garage. That’s the beauty of EVs.

      • Double D
        Sep 10, 2019 at 3:09 pm

        My son is a service writer for Audi of Reno. I always gauge the market by asking him every time I see or talk to him “how is business?”. He says they’re extremely busy with repair work & still doing well selling cars. I’m always worried about his job security, but things right now keep humming along.

        Owners of Audi’s keep their cars a long time & I guess that’s because they last a long time and are well built.

        • Harrold
          Sep 10, 2019 at 3:40 pm

          Audi’s well built?

          They are at the lower end of the list of reliability and expensive to repair.

          That is why your son is busy.

        • daniel weise
          Sep 10, 2019 at 5:11 pm

          “they are extremely busy with repair work because the cars are so well built and last a long time” thanks for the chuckle! rule # one : German Cars,Lease ONLY and then return unless you enjoy ginormous repair bills. that is the reason you can buy a used E class 3 years old for less that half of the original cost. same goes for BMW,AUDI etc. Luxury cars in general are Lease only IMO,just way too many complicated systems and electronic doodads that will be very expensive to repair after the warranty runs out.

        • 2banana
          Sep 10, 2019 at 5:57 pm

          BMW and Porsche built tanks for the Germans in WWII.

          Great performance, stylish, loved by thier crews and broke down about every other day.

          And things don’t change!

        • observer
          Sep 14, 2019 at 1:00 pm

          Don’t listen to Harrold. Consumer Reports ranked Audi #4 in their best cars list recently…

          https://www.usatoday.com/story/money/cars/2019/02/21/consumer-reports-best-cars-2019-subaru-toyota-dominate-top-picks/2936504002/

      • California Bob
        Sep 10, 2019 at 10:46 pm

        “… with GM and Ford going bankrupt …”

        Ford went bankrupt??!!!

        • Sep 11, 2019 at 1:37 am

          Nah, Chrysler did. This came out wrong in the heat of the battle.

        • SwissKev
          Sep 11, 2019 at 2:33 am

          Going, not went (yet).

  7. Double D
    Sep 10, 2019 at 2:58 pm

    It’s always better to buy a good, used vehicle than new. New vehicles depreciate like crazy as soon as they’re driven off the lot. Cars & trucks are better made today & have been for a while. Another reason to buy “the right” good used low mileage car/truck is because with good maintenance, it becomes the gift that keeps on giving. I say the right car or truck because some are just junk new or used – like a Dodge or a Ford :).

    The other alternative of course is leasing which is also a huge part of the market. We leased a 2018 VW Jetta late last year when delaers were looking to liquidate all 2018’s. Got a great deal on a 3 year 45,000 mi lease at $125/mo & $3k down. I think it’s a very good way to go for some people. The fact of the matter is, there are screaming deals to be had buying used or leasing with a little time & research.

    • Endeavor
      Sep 10, 2019 at 3:06 pm

      Old saying in the car business around here. Lease American and German, buy Japanese. I leased a 2016 VW Jetta and had no issues when turned in at 36k miles. But I know VW owners who go the distance and some have expensive repair issues. Had a 2007 Ford Fusion sold at 185k miles and the only repair not considered maintenance was a 10 dollar thermostat.
      Bought another Fusion.

      • Jeff T
        Sep 10, 2019 at 5:41 pm

        To me, the automobile has always represented one of the great American freedoms. I would agree to buy Japanese. At one time my family was driving five used Toyotas, a Honda, Mercedes and a GMC Suburban (large family). The Japanese cars required very little repairs other than normal maintenance, the Mercedes maintenance was high but almost no repairs. The GMC suburban was a recall and repair nightmare.

    • Nels Nelson
      Sep 10, 2019 at 3:59 pm

      Depreciation is not an out of pocket expense. It is not realized until you sell the vehicle. If you sell a car purchased new after 3 years, the depreciation amortized over that time can be substantial and if you financed you may still owe more on the car than it can be sold for. You are upside down. If you buy a new car and keep it for 10 years the depreciation over those 10 years on an annual basis is much less because at least half of the depreciation occurs in the first three years.

      With a 3 year lease, what you are paying for is the amortization of the depreciation and interest plus interest on the residual they have loaned you. Think of a lease as 3 year financing with a balloon payment at the end. Either you pay the residual and take possession of the car or you turn it back in.

      Leasing is the financialization of an asset owned by either a finance company or the manufacturer’s finance arm. In the latter case it goes back to the manufacturer and they sell it as certified preowned and make more money off of their asset. It is important when considering this financialization that the manufacturer’s cost is considerably less than what the dealers cost is or the transaction cost. This difference can be quite substantial on vehicles loaded with expensive options.

    • Zantetsu
      Sep 10, 2019 at 7:04 pm

      Meh, new vehicles, used vehicles, and leases are all different products, and making a blanket statement that one category of product is always better than another ignores tons of important factors.

      If all you are worried about is getting from point A to B as cheaply as possible, there are a wealth of options that you didn’t even discuss. You could bum rides from friends all that time, for example, that will cost you next to nothing.

      • Clete
        Sep 10, 2019 at 8:10 pm

        …except your friends.

    • Dale
      Sep 10, 2019 at 8:30 pm

      Last year I had this experience:
      1. I was looking for a good used vehicle. I found one at a price that seemed a little high.
      2. At the same dealership, I found the same model new vehicle, identically equipped, for less money.

      I believe I have the screenshots (or maybe PDFs) somewhere.

      How / why? I welcome any theories.

      • RIPP
        Sep 11, 2019 at 1:55 pm

        Was it a small SUV or a sedan? I noticed the same thing in both cases when I was looking last September after my car was totaled by someone not paying attention. The used SUVs (1-2 years old) were in such high demand that they were basically the same price as new. The sedans because they were so desperate to sell the new ones that the price was about as low as they could possibly go.

      • Marc D.
        Sep 11, 2019 at 2:27 pm

        Dale – I know that dealers will reduce the price on a new car the longer that it’s sitting on their lot. So maybe that new car had been sitting on their lot a lot longer than the used one? That’s still an odd situation, though. Was the new one in an ugly color? That could be a factor, too.

      • p coyle
        Sep 12, 2019 at 2:03 am

        were they the same color? both interior and exterior? certainly that should factor into the price…

  8. unit472
    Sep 10, 2019 at 3:00 pm

    I’ve been looking at new cars even though my current one doesn’t even have 20,000 miles on it. Too many bells and whistles you are forced to buy even if you don’t want them. I don’t even use most of the ‘conveniences’ on my current car like phone buttons on the steering wheel. Then there are the heated seats and steering wheel. I live in Sarasota, Florida now. I don’t need heated seats. Problem is its standard equipment on any but the cheapest cars now. I was delighted to see that Jeep Wrangler ( I think it was) makes a keyless system a $275 option that I would be glad not to pay for but it is standard on the upgraded models of the vehicle. I like a key its smaller cheaper and it doesn’t tell me I can’t open the trunk unless I turn the car off first.

  9. Anthony Aluknavich
    Sep 10, 2019 at 3:09 pm

    Last may, we bought a 2019 Dodge Grand Caravan which was absolutely mint and loaded (heated seats, pleather, Nav, pwr seats, etc, etc,) with 17,000 miles on it from Enterprise Auto Sales. It was a lease turn in (probably rental car). We paid a shade over $20K for the van which had a MSRP of low $30’s. Enterprise gave us 12 months/12,000 mile warranty on top of the factory one. They threw in new tires and gave us $10.5 K for our 2013 Hyundai Santa Fe with 100,000 miles on it.

    No wonder new car sales are in the tank. All major rental car dealers are doing this (lease turn in sales) along with other “one price” retail lots like Echo Park and others.

  10. Jayson
    Sep 10, 2019 at 3:45 pm

    I follow the inventory at the hertz car sale lot by me and the turnover of inventory is amazing. I find them to be a great indicator of the local sales market since they sell across brands and vehicle types. One or two year old cars always below KKB bottom price. They had to hire three additional sales people to keep up. I went to look at a challenger and it was sold in a day.

    • mtnwoman
      Sep 10, 2019 at 8:29 pm

      How does one find a Hertz car sale lot?

      • Jayson
        Sep 10, 2019 at 9:47 pm

        Just google it for your area. They have a few, not in all states.

  11. tom
    Sep 10, 2019 at 3:45 pm

    Purchase work trucks used. Last time it took me 2 yrs to find a used diesel
    at a reasonable price. Used to be an absolute steal on the used market,
    with larger companies updating fleet & getting rid of diesels that didn’t even have 75,000 on them.

    Not anymore. And unless your hauling equipment daily, they will stick with a gas engine 3/4 or 1 ton.

  12. GP
    Sep 10, 2019 at 4:28 pm

    Nice article. You cover a lot of aspects including unintended consequence of “cash for clunkers” program.

    You didn’t mention cheap auto loans and purchase of sub-prime auto loans by yield-chasing investors. Do you not see that as a factor?

    IMO, as with any other asset class, prices are affected by the monthly payments – cheap and easy loans mean higher sticker prices.

    • Sep 10, 2019 at 4:54 pm

      Subprime auto loans are a different topic that I cover separately. You might have missed it, but at the bottom of the article I linked my latest about subprime auto loans — this one about the delinquencies:

      https://wolfstreet.com/2019/08/13/auto-loan-subprime-delinquencies-at-2009-level-biggest-12-month-surge-since-2010/

      • d
        Sep 11, 2019 at 3:30 am

        Is this situation a symptom of a large % of consumer’s showing resistance to new price, or is it that the a large % of consumer’s, can simply no longer afford the new price.

        • RIPP
          Sep 11, 2019 at 2:14 pm

          I think it’s a lot of both. I personally do not feel new cars are worth the asking price, so I will not pay it. Many people won’t even consider a new car.

          These prices require a significant down payment if you want a monthly payment that isn’t $500+ a month. The average person can’t even save $500 let alone $5000 for a semi-decent down payment.

          I don’t even want to think about what happens to those people trading in almost new cars that they are still underwater on…talk about bad decisions.

  13. Old-school
    Sep 10, 2019 at 4:28 pm

    I think Dave Ramsey has good rules of thumb about cars:
    1. Pay cash
    2. Never pay more than half your income.
    3. Don’t do a repair worth more than what the car is worth.

    • Old-school
      Sep 10, 2019 at 4:30 pm

      Should have said never do a repair more than 50% of value of car.

      • Paulo
        Sep 10, 2019 at 5:12 pm

        @Old School

        Unless you’re poor and also losing it.

        I have an older friend who is 500 dollaring himself to death. He knows he needs to replace, but…. he just doesn’t. Every other month it’s something. He is 79 and I am 64. I have very nicely said the obvious, “Why don’t you think about getting rid of your crapped out ’95 F150 and buy a used Caravan? You need a truck like I need a sports car”. He will be making payments if he does, but a $200 month payment will save him money and maint costs…but he still doesn’t. He thinks he has a ‘relationship’ with the head mechanic at the Ford dealership…he calls him John and always asks for him specifically. And yes he is poor. He spends every extra cent on maintaining his truck and putting gas in it. Driving somewhere is probably his main pleasure in life.

        I rent him a cottage and he spends more on maintaining his truck than I charge him for rent.

        Today he had an exhaust manifold replaced….$500.

        • Old-school
          Sep 10, 2019 at 8:07 pm

          That’s sad. There is point I throw in the towel. I repair some things and take to small shop mechanics for others, but i try to always do the numbers to see if I should just unload it cheap.

          There is an older guy around here who is very nice, but not very book smart. People tend to give him a car or sell him one cheap. It’s not very long til the thing looks like crap and is broken down. I guess some people just don’t have the money or know how to own a car.

      • d
        Sep 11, 2019 at 3:30 am

        “Should have said never do a repair more than 50% of value of car.” In its broken condition.

    • Juanfo
      Sep 13, 2019 at 12:44 pm

      How do you sell the car if it’s not running? Down here a car price quickly drops from $2000 down to $300 if it doesn’t run or tags expired. So spending $1000 or even $1500 is still reasonable if you want to sell or keep it. The problem is you can’t transfer the title unless tags are up to date which requires inspection including smog. Inspection gets tighter every year so it is more difficult to keep the old cars on the road. It is a way for TPTB to force people to buy new cars. You can sell a car without tags but it is a liability to have others driving around a car with your name on it. Down here the registered car owner is directly responsible for what happens in the car regardless of who is driving it.

  14. David Hall
    Sep 10, 2019 at 4:44 pm

    Warren Buffett used to keep his car for ten years before getting a new one.

    In 2016 the price of Brent crude oil touched $30/barrel. In 2019 the price has averaged over $60, although it is lower today. The higher fuel prices do not seem to be hurting US truck sales.

    • David Hall
      Sep 10, 2019 at 4:57 pm

      Correction Brent crude is over $60 a barrel today, doubling since 2016.

      • Prairies
        Sep 11, 2019 at 2:04 pm

        Still not even half of the peak from the year before that low.

  15. Rowen
    Sep 10, 2019 at 6:00 pm

    An acquaintance was hired by a Volvo contractor a couple of months ago at the new S60 facility in SC. A couple of weeks ago, she was just laid off. S60s as far as the eye can see just sitting there, waiting on buyers.

  16. arihalli
    Sep 10, 2019 at 7:52 pm

    Actually, i believe the CASH FOR CLUNKERS program was not to kickstart new car buying. It was to remove cars that were getting poor gas milage.

    But i could be wrong. Its happened before.

    • Old-school
      Sep 10, 2019 at 8:15 pm

      I think about all they practice in government economics is to pull forward demand. I think that was the purpose of cash for clunkers.

      One day they will say we have demand problem, so we are going to charge you to save your money. Oh wait.

    • SnotFroth
      Sep 10, 2019 at 9:41 pm

      The purpose was stimulate the auto industry including local dealerships, which it did. The environmentalist aspect was sugar coating to help the pill go down.

      I work with auto dealers and at the time (2009) they looked like starving animals that had just been thrown a bucket of steaks.

  17. Rat Fink
    Sep 11, 2019 at 1:24 am

    Electric cars not attractive for most people in the UK

    Only one in four people would consider buying a fully electric car in the next five years.

    That is the finding of one of the most comprehensive studies into UK consumers and pure electric vehicles.

    https://www.bbc.com/news/business-48340202

    Of course if you throw massive subsidies out there:

    Norway’s electric car miracle is a smug national fraud built on subsidizing rich people with Teslas

    By dropping VAT, CO2 tax and weight tax a Tesla imported for $70k becomes cheaper than an Audi that cost $35k when it crossed the Norwegian border. Add in the lowered road tax and free passage through toll roads, free places on ferries and free parking, as well as the difference in the fuel price, such cars are 75 percent cheaper to operate.

    Norway is spending about $2 billion each year on the subsidies – as much as it expends on parental leave pay – and with the current uptake rate and existing rules the current figure will balloon into the tens of billions.

    https://www.rt.com/news/468342-norway-tesla-electric-cars-hypocrisy/

    It’s a wonder that anyone still drives an ICE vehicle in Norway.

    Want to get that to 100%? Why not just eliminate payroll tax for anyone who buys an EV :)

  18. Old-school
    Sep 11, 2019 at 7:08 am

    I just read that solar panels are not recyclable and contain a lot of bad stuff. If this is true we are a bunch of dumb ashes for going down that road. I think nuclear base and dual cycle natural gas power make the most sense but very good is the enemy of the perfect.

    Also read Japan is building 40 coal power plants? And what’s up with corn based ethanol? That one seems really stupid.

  19. Fat abbot
    Sep 11, 2019 at 10:32 am

    You can buy new compact cars for not too much. Last year I got the most basic 2018 hyundai elantra for $12,5000 brand new at dealer. They had tons in Stock, everyone wants trucks in Texas.

    • Marc D.
      Sep 13, 2019 at 11:54 am

      Exactly. I disagree with the notion that you can’t find reasonably priced new cars. There are many sedans (like the Elantra you got a great deal on) available at discounts, especially nowadays, at the end of the 2019 model year.

      Now, can you get a fully loaded large SUV for a reasonable price nowadays? Probably not, but there are many normal sedans available for reasonable prices.

  20. Timthetiny
    Sep 11, 2019 at 10:42 am

    140/120 = 16% price gain in roughly a decade?

    Not bad at all. Less than overall inflation.

    • Sep 11, 2019 at 10:45 am

      The index is “mix-adjusted.” Meaning that when a new model gets more expensive because it has more equipment and features, the index is adjusted for that. So a two-year old car that you buy today is a much better vehicle in a million ways than a two-year old car you bought in 2000. These quality improvements are adjusted out of the index.

  21. FluffyGato
    Sep 11, 2019 at 11:53 am

    This second bullet point from the report:

    “•Large numbers of late-model off-lease vehicles coming into the used-vehicle market”

    Suggests softness in pricing, or at least a significantly mitigating of price increases for used vehicles.

  22. cheapo rico
    Sep 12, 2019 at 11:40 am

    My net worth is about $15 M (just sayin) . My car is 13 y/o and worth 5k.
    I will NOT pay those crazy prices (my car if new would be 90k).

  23. TooSoonOld
    Sep 15, 2019 at 9:51 am

    Just saw this in the NYT:

    “With the cost of new cars rising, even drivers with top-notch credit are seeking more affordable used options, automotive researchers report.

    Customers with good to excellent credit accounted for well over half of used-car financing, a record, in the second quarter this year, according to the credit bureau Experian.

    That’s a change from years past, when “prime” borrowers — generally, those with credit scores above 660 — tended to buy new cars, said Melinda Zabritski, Experian’s senior director of automotive financial services.”

    So now the best-off among us are adding upward pressure to the price of used cars!

  24. Sep 19, 2019 at 4:58 pm

    Happens that Houston just flooded not long after this was posted.

Comments are closed.