This Week in Car Buying: Surfing the coming used car Tsunami, from Kelley Blue Book.
A byproduct of the all the frenzied year-end new car sales activity is that this robust market will contribute to a future glut of used cars in the not too distant future. Which means that those who are seeking an entry level model may have a much more difficult decision to make on whether to take the plunge or for the same money, step up to a better-equipped used vehicle for the same money.
One of the factors that ignited the current sales boom was the meltdown in car sales that began in 2009. With sales off by more than a third, fewer used cars made their way into the market and as a result, prices were generally higher on pre-owned vehicles, making the walk-up in price to a new car not that far. But now, after three years of recovery in the new car market, used inventory from both retail and fleet sales is beginning to grow. That supply will result in downward pressure on prices and perversely affect the new car market in two ways, by siphoning off some new car buyers and lowering residual rates making leasing more expensive. In other words, it will put additional pressure on manufacturers to keep the incentive bandwagon going to maintain the current blistering sales pace, which is good news for car buyers.
Rental units beginning to impact market
While there has been plenty of attention given to off-lease cars coming into the used car market, another source of these vehicles are daily rental fleets. Large firms, like Hertz, which recently announced it will buy 350,000 2015 models, an increase of 60 percent over 2014, have been expanding their fleets. At the same time, they are changing the mix of vehicles they outright purchase and remarket through their own lots and instead are shifting back to a scenario where vehicles are returned to the manufacturer for remarketing through their dealer networks in Certified Pre-Owned programs. This shift underscores the fact that used vehicle prices are expected to drop and the rental companies would rather shift the disposal of vehicles, which had greater profits in times of tight used car supplies, back to the manufacturers when a glut of used vehicles will reduce margins.
