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Used-car shortage expected to ease in 2010

October 28, 2010

About 8 million fewer used cars and trucks entered the U.S. market over the past two years, resulting in higher used-vehicle prices every month in 2009, according to the latest AuctionNet data of wholesale transaction prices. AuctionNet is a joint partnership between the N.A.D.A. Official Used Car Guide and the National Auto Auction Association.

"There were several reasons for the decline in used-vehicle inventory: Dramatically lower new-car sales in 2008, as well as fewer trade-ins, off-lease vehicles, and rental-fleet vehicles in 2009," says Paul Taylor, chief economist for the National Automobile Dealers Association.

But Taylor said the popular cash-for-clunkers incentive was not a reason for the increase in used-car prices month-over-month from January through November 2009. December figures were not available at this newsletter’s deadline.

"The cash-for-clunkers program removed only 690,000 used vehicles from the marketplace, and these clunker vehicles largely were undesirable anyway," Taylor said. "Even if these vehicles hadn’t been recycled under the program, their worth as trade-ins was modest."

With new-vehicle sales expected to increase some 15 percent in 2010, Taylor estimates an additional 1.1 million used cars and trucks will be traded in at new-car dealerships compared with 2009.

"We’ll start to see an ease to the used-car shortage, but it will be several years before the supply returns to the average of the 1998-2007 period of strong new-car sales," said Taylor.

"As 2010 gets underway, the short supply of used vehicles means a narrow spread between new- and used-car prices, so expect new-car sales to be a greater share of the sales mix, and certified and other used cars to be a relatively smaller share, compared to the last decade."

Before 2008, used cars were profitable every year since 1980. In 2008, dealerships saw, on average, a net loss of $5 per used vehicle retailed as gasoline prices first surged to $4.11 a gallon nationally, then fell to less than $2 a gallon later that year.

"Because of whipsaw gasoline prices, used-car and new-car inventories were mismatched to consumer demand in 2008," Taylor said. "Gas prices will be flat or inch up modestly as the economy recovers in 2010, suggesting a more stable mix of used-car and new-car demand."