Used car prices going up along with demand

People in the market for a used car all are looking for the same vehicle.

They all want one that's no more than 3 years old in excellent condition. And if they find it, they're willing to pay a premium.

Used vehicle prices jumped an average of 16 percent in October compared with a year ago, according to Edmunds.com, an automotive information Web site.

Leading the rise are minivans, up 27.1 percent. The Web site shows increases for 14 of 15 vehicle categories, with the only decline being a 1.6 percent drop in the price of midsize cars.

The dramatic increase stems from basic economic principles, said Joe Spina, analyst for California-based Edmunds.com. "Used car supply is down, and demand is up," he said.

The supply has diminished for several reasons, Spina said.

For one, many vehicle manufacturers cut their leasing programs several years ago, meaning there are fewer vehicles coming off leases and entering the used market.

Another reason is the federal Cash for Clunkers program, which gave consumers an incentive of up to $4,500 to trade in older vehicles for new ones. Those older vehicles were destroyed, meaning nearly 700,000 vehicles that could have ended up in the used car market were eliminated.

Fewer trade-ins

Also, new car sales are down about a third from more than 15 million annually, especially after the clunkers program ended in August, so fewer customers are trading in their used cars.

David Halvorson, president of American Chevrolet in Modesto, said all this has made for a stronger used car market in terms of value. People with a used car to sell are likely to get top dollar if it's in a category that's in high demand, such as a van or sport utility vehicle.

Halvorson, a longtime valley dealer, said the problem for dealers is they have to pay more for the used cars they put on their lots, so prices are higher and margins are tighter. For consumers who track used car prices closely, that can make finding the deal they like a little more work.

But Halvorson said the increase in used car values means people can get more for their old cars as trade-ins. Combined with all the new-car incentives, he said, many prospective buyers may find they can afford a new vehicle.

"It's our job to show people all their options so they can get the best value," he said. "We want them to make a decision that's right for them."

Desire for cheaper rides

Meanwhile, demand is up nationwide because many traditional new-car shoppers are considering used cars because of the economy.

Doug Roberts, owner of Roberts Auto Sales in Modesto, said those people want value.

Consumers realize they can have nice used cars and save thousands of dollars, Roberts said. "The majority of people are looking for 1-, 2-, 3-year-old, low-mileage cars," he said.

Consumers are looking for all kinds of used cars in all kinds of price ranges, Roberts said, from small fuel- efficient cars to large pickups and SUVs. For those who want an SUV, he said, there are some very good values to be had.

Loans accessible

Roberts, who's been in business for more than 30 years, said there's plenty of financing available at low interest rates. He said banks still see auto loans as good business, and qualifications haven't gotten tougher in the past year. "We can do 100 percent financing," he said.

While acknowledging that the supply of used cars has tightened, Roberts said he and other dealers have enough cars to meet the demand and plenty of good values to satisfy thrifty consumers.

Halvorson said the auto industry experienced a sales hangover — fewer buyers — after the end of Cash for Clunkers. But with more positive reports about the economy coming out, he said he's hopeful consumers will regain their shaken confidence and return to dealerships.

"How we do during the holidays will be a good indicator of where the economy is heading," Halvorson said.

Bee city editor David W. Hill can be reached at dhill@modbee.com or 578-2336.