May 21, 2011 in Business

Dealers paying well for used cars

People holding on to vehicles longer; run-up in prices may be at peak
Tom Krisher Associated Press
 
Associated Press photo

Jeremy Barnes poses in front of the 2007 Honda he is selling near his home in Greensboro, N.C. With used-car prices at 16-year highs, and a child on the way for him and his wife, Barnes is hoping to sell it for a good price and most likely spend more on the new car they buy.
(Full-size photo)

DETROIT – It’s the best time in years to sell your car.

People are holding on to cars and trucks for about a year longer than they did before the recession, which has created a tight supply of used vehicles. So few are on the market that prices have risen to their highest levels in at least 16 years.

Dealers are paying an average of $11,660 for a used car or truck, up almost 30 percent since December 2008.

“You’re not going to find a situation like this very often,” said Jonathan Banks, executive auto analyst for the National Automobile Dealers Association used car pricing guide.

The run-up in prices for used cars has been so dramatic that it almost doesn’t make sense to buy them anymore, said David Whiston, an auto analyst for Morningstar. That’s probably a good indication that prices are at or near a peak.

“For just a little bit more I can buy a brand-new car,” he said. “There’s a tipping point. I think we are getting very close to seeing that.”

Take the Honda Accord, known for reliability and holding its value. A dealer would sell a 2008 four-cylinder Accord LX sedan in good condition with about 45,000 miles on it for $16,175.

With no down payment and a loan at 5 percent interest, it would cost $373 a month to pay off the Accord in four years. But Honda is offering a three-year lease on a new 2011 Accord for just $250 a month. The company will even make the first payment. You still have to pay $600 up front and 15 cents for each mile you drive over 12,000 a year.

In Greensboro, N.C., Jeremy Barnes and his wife are expecting their first child, so they decided to replace a white 2007 Accord with a bigger, new vehicle. He wasn’t sure what they could get for the Accord when he checked prices on the Kelley Blue Book website.

“I was pleasantly surprised,” said Barnes, 30, a heating and air conditioning equipment salesman.

He’s asking $15,200 for the car, which is in good shape and has 47,000 miles on it. While waiting for a buyer, the couple are looking at vehicles like the Jeep Grand Cherokee.

The rise in used-car prices is a byproduct of the recession. The average car on the road now is 10.6 years old, according to the Polk research firm. That’s up from 9.8 years in the middle of 2007, a few months before the recession struck and people began to rethink major purchases.

Another source of used cars got choked off when credit tightened during the 2008 financial crisis and car companies cut back on leasing new ones. Companies sell leased cars as used when leases expire.

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