When gasoline prices remain high, sales of small cars typically grow. Prices tend to shoot upward, too. Introducing a webinar presentation hosted by the Pre-Owned Automobile Dealers Alliance, managing director Bill Zadeits called attention to a recent news story in Auto Remarketing magazine. Jonathan Banks, executive automotive analyst for the NADA Used Car Guide, had said small car trade-in values were likely to skyrocket in the coming month. Banks projected that those prices would average 18 percent higher in June than they’d been at the start of 2011.
Since February, there’s “been an unbelievable climb in prices,” said Ricky Beggs, vice-president and managing editor of the Black Book–a prominent used-car valuation guide published for dealers. Factors affecting high prices include low supply levels, struggling consumer confidence, gas prices, and anticipated shortages.
Supply is limited by sagging new-vehicle sales in 2009 and 2010, Beggs explained, bottoming out in 2009 at 10.3 million. When few cars are sold in a given year, that translates to fewer late-model used cars a couple of years later.
Reduced supply and rising demand inevitably translate to escalating prices. On the demand side, Beggs referred to three natural disasters that are impacting the business, at least in the short-term:
- The earthquake in Japan.
- Flooding in Mississippi River areas.
- Tornadoes in the southeast.
Supplies of new Toyota, Honda, and Nissan models won’t “bottom out” until July-August, Beggs said. Although the earthquake may not affect used-car sales directly, a shortage of new vehicles means more shoppers may be swinging over to the used-car side, adding to overall demand. Tornadoes and flooding, meanwhile, increase the need for vehicles to replace those that were damaged during the devastation. More...