Used Car Market Affected by Shortages
By Dale Mayer, Autotropolis Contributor
The face of the automobile lease industry has changed. There are still vehicle leases available but not from the big automobile companies like Chrysler. The foreign automakers still offer leases and there are close to 4,500 independent leasing firms and thousands of car dealers who have their own arrangements with their banks. Leases will be possible but not as cheap or as easily as before because down payments and monthly payments will rise and only those consumers with excellent credit will be approved.
So where are these off-lease consumers going? According to Art Spinella, general manager of CNW Marketing Research, the estimates show that close to thirty percent of these customers will go the use car market. Twenty percent will lease another vehicle through a different institution and the balance of the consumers will be looking at long-term payments for new vehicles.
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Those consumers heading to the used car market could be in for a shock. The largest source of vehicles for the used car industry came from leases. Consider the used car market and the effect of supply and demand. In this case there is an increase in consumers considering the used car option as they that can’t or don’t want to afford the monthly payments required to get into a new vehicle. At the same time, there are less off-lease vehicles coming into the used car lots and so the industry is hit with a double header. More consumers wanting to purchase a commodity that has declined in availability mean, of course, higher prices. In some instances, much higher prices.
This price increase is felt across the nation but the hardest hit is the Los Angeles area. Here the shortage of good used late model cars has pushed up the prices by 12 percent over last year’s prices already. This time last year the market was saturated with cars coming off leases. Now with even fewer lease vehicles coming in the next few years, the prices will rise yet again. The most increases have been seen in the late model low mileage models. The Los Angeles region had been an easy market that quickly absorbed the excess off-lease inventory from across the country. Not everyone is upset about the rising prices. For fleet owners or others with a large number of cars to move, the high prices are a big plus.
This raises another issue. The main source now for used cars will be rental cars. Just knowing that will stop some consumers in their tracks. Rental cars traditionally have a bad reputation. The stigma attached to buying this type of vehicle is because of the many drivers who have no stake in maintaining or treating the vehicle with care. There’s many a person who likes to rent a vehicle and then drive it into the ground just to see what it can do.
However do consider that these rental vehicles go through regular servicing, often more thorough than the regular consumer vehicle does and before being sold as a ‘used car’ it is certified first. This doesn’t guarantee that the used vehicle is a good deal, but it does go a long ways toward hedging your bet.
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