On the Money: Glut of used cars gives buyers more options

DETROIT — Bargain prices on 2- and 3-year-old vehicles fueled record sales of used cars, trucks and SUVs last year, a trend that is expected to continue because people can save thousands of dollars over buying new.

Used vehicle sales hit 39.2 million vehicles in 2017, more than double the number of new automobiles sold, according to the Edmunds.com auto website. To be sure, Americans for years have bought more used cars than new, but a recent glut of well-equipped vehicles coming off leases is sending more people to the used market.

That cut into new vehicle sales last year, helping to push them down 2 per cent. And the trend is likely to continue because leasing remains around a near-record 30 per cent of all U.S. new vehicle sales. That will provide an ample supply of used cars for at least three more years, said Ivan Drury, senior manager of industry analysis for Edmunds. (Edmunds regularly provides content, including automotive tips and reviews, for distribution by The Associated Press.)

“In almost every instance, that 3-year-old car is going to save you so much money it wouldn’t make any financial sense” to choose new, Drury said.

About 4 million vehicles are coming into the used market from leases this year, many of them cars that can be bought cheaply because buyers are more interested in SUVs.

On average, the buyer of a 3-year-old car can save around $14,000 over buying the same car new, according to Edmunds.

New vehicle prices continue to rise to record levels, pushing some people out of the market and making off-lease vehicles even more attractive, Drury said. At the same time, the rate of increase for used cars is slowing due to abundant supply, so the gap between new and used prices is growing.

The average new vehicle in 2012 sold for $30,803. By the end of 2017, that rose by nearly $4,400, according to Edmunds. During the same period, the average used auto price rose $2,784, to $19,462. The difference between new and used prices grew by almost $1,600, from $14,125 in 2012 to $15,714 last year.

The spread between new and used is even more dramatic for a 3-year-old vehicle. Last year, 3-year-old autos sold for about $20,500. From 2012 to 2017, the gap between a 3-year-old vehicle and an average new one grew more than $3,500 to $13,877.

For Jonathan Bursevich, who lives near Fort Lauderdale, Florida, the spread between new and used was just too great to pass up. In December, he bought a well-equipped, mint condition grey 2015 Audi A4 from a dealership for about $23,000, a savings of at least $16,000 over the cost of a new one.

The 25-year-old risk management broker checked prices on Google and found a new A4 to be “way out of my budget.” His parents always bought used cars, foregoing the latest features but saving thousands. So he checked and found an Audi-certified used A4 with 46,000 miles on it for a little over half the price of a new one “which I thought was a fantastic value for the car.”

The used Audi lacks some technology that’s on the new one, including a backup camera and a steering assist feature, Bursevich said. “If I don’t feel like I’m in the stone age and everything else works, then I would be more than happy to save money,” he said.

The only reason buyers would go for a new vehicle is if the design is dramatically different or if it has new technology they want, Drury said. But not every vehicle has been redesigned, and technology hasn’t changed that much in the last few years. Most 2 or 3-year-old cars have backup cameras and Bluetooth technology to link phones to the cars, he said. Many have blind spot detection and other features, he added.

Currently the good used deals are on cars, but even that will change in the next few years as more SUVs are added to the mix of vehicles coming off leases, said Jeff Schuster, a senior vice-president at the forecasting firm LMC Automotive.

Seeing the trend toward higher used-vehicle sales and the slowing price increases of used cars, many dealers have changed their business models and aren’t marking up used vehicles like they used to, Drury said.

David Kelleher, who runs a Fiat Chrysler dealership in suburban Philadelphia, lowered used vehicle prices and moved more of them last year. As a result, he doubled used-vehicle sales from 45 per month to 90, while new vehicle sales stayed flat.

Buyers, he said, come to the dealership knowing the average price for a used car. “We’re pricing to the market rather than the old model, which was you trade the car, put it in the shop and mark it up $2,500,” Kelleher said.