Saturday, December 15, 2012

Buying used cars may be a great holiday strategy


BY JIM GALLAGHER ST. LOUIS POST-DISPATCH

If you’re looking for a car, love snow. Love ice. Delight in shivering. Used car prices tend to dip when the weather is cold, and deals are best in winter.

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Historically, used car prices drop when winter weather hits.

Hate hurricanes. Hurricane Sandy may have put a halt, perhaps temporarily, to what had been a nice decline in used car prices.

All that adds up to a mixed bag to those needing wheels. You’ll get a better deal on a used car today than had you shopped a few months ago. But if you can wait a little longer, the deal might look a little sweeter.

Let’s talk about used cars first, and new cars further on.

The Great Recession had a perverse effect on the used car market — it pushed prices up. Fewer people buying new cars meant fewer nice used cars showing up on the car lots, and higher prices.

Prices last year hit “the highest levels ever seen,” said Alec Gutierrez, senior market analyst at Kelley Blue Book.

Prices began to ease this spring. The average U.S. wholesale price of a used car at auction shrank from $9,922 in March to $8,683 in September, according to ADESA Analytics. They kept shrinking through mid-October. Then came warnings about Hurricane Sandy, and by October’s end prices were at $8,803.

Prices rose in anticipation that soggy Easterners would soon be replacing swamped cars.

Prices on used car lots reflect the wholesale auctions. Gutierrez is betting that the Sandy effect will fade and prices will be down by an additional 1 or 2 percent over the winter. “We’re not expecting prices to fall off a cliff,” he said.

Part of the decline is seasonal; prices tend to fall in the cold months and rise in spring, when shoppers leave hibernation. It also refl ects more nice used cars coming on the market as new car sales rise, producing tradeins.

Then there’s a flock of former lease cars expected to hit the used car market in 2013, reflecting a rise in auto leases three years ago. All of that should push down used car prices next year.

Shoppers usually do better buying low-mileage used cars instead of new ones. That new car smell just isn’t worth the rapid loss in value when a new car leaves the lot.

But that may no longer be true for little gas-sippers, says Jesse Toprak, analyst at True-Car.com, an online car buying site. Honda Civics, Toyota Corollas and the like are commanding high prices used — so high that new models may be the better deal, considering low-cost financing, other sales incentives and new-car warranties.

December is usually a good month for making a deal on a new car. A few of last year’s models are still aging on the lot. Sales are slow because people are busy with Christmas, and dealers feel some pressure to get sales numbers up before New Year’s.

“That’s changing a little bit, especially this year,” Toprak said.

New passenger car sales are up 19 percent this year, although they’re still below prerecession levels. SUVs and crossovers are up 8 percent. As a result, makers and dealers have lost much of the desperation that drove big incentives a couple of years ago.

Manufacturers’ incentives are stingier now, said Toprak, and they tilt more toward cheap loans and lease deals. There are plenty of cashback discounts around, but they’re not as sweet as they used to be.

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