The U.S. Auto Market Is Running Out of Used Cars

[lostinblue 1,989]

http://www.businessweek.com/lifestyle/cont...id=ak_bloomberg

No matter how many times we've been told that the economy is getting better, the most recent Reuters/University of Michigan Index of Consumer Sentiment suggests that the public is not buying it. Coming in at an anemic 73.4 (although up from November's reading), this is a long way from the 100 baseline that denoted consumer optimism in years such as 1985, which led directly into the first year in which U.S. car sales topped the 16 million mark.

In forecasting U.S. car sales for 2010, most prognosticators set the mark only slightly higher than today's level—from 11.2 to 11.5 million sales. The auto industry's dynamics suggest that much higher volumes are attainable. For one thing, the momentum of the used car market—which most new car dealers have promoted to stay profitable over the past seven years—is undergoing a major reversal. The day when new car dealers could pose as used car superstores is likely coming to an end. To survive, dealers will be forced to sell more new cars.

Creating large used car operations was an obvious step for new car dealers. Most were fed up as new car margins were cut to near zero. Constantly changing rebates and incentives meant that few dealers could properly plan their advertising. Worse, the manufacturers were often so late in announcing each month's incentive programs that dealers commonly missed out on the first weekend's sales. ...... more

[lucyrich 19]

No huge surprise. For the past year or more, credit has been tight, people have been worried about layoffs, and new car sales have been way, way down.

A lot of the new car sales lately have been with the government assisted "cash for clunkers" program, but that program required that the clunkers be destroyed, so they didn't reappear on the used market.

If nobody's buying new cars, then it's no surprise that they're not trading in their older cars, so it's hard to find used cars. Of course, it also may be true that not so many people were wanting to buy used cars, so maybe the lack of supply was close to being in balance with lack of demand.

The thing is, in the short term, most any car buyer can postpone purchasing a car for awhile, with the possible exception of people replacing a car that's been destroyed in a crash. You can usually hang on to an old vehicle and invest a bit in maintenance to keep it running awhile longer.

But you can only do that for so long. In the long term, cars wear out, or repairs become so expensive that it's cheaper to replace than to repair. Our collective fleet has seen a couple of years of wear and tear with very little replacement going on lately. That tells me that, if we can have a stable employment situation and a stable credit situation, there could be a car buying boom in the near future due to all of that pent up demand.

You heard it hear first.