US used-car glut is a dealer’s dream, automakers’ nightmare
The automakers have flooded the market.
Dan Reel, owner of Reel’s Auto
ORWELL, OHIO: Three years ago if a customer walked onto Dan Reel’s used car lot seeking a latemodel off-lease Ford Escape, his answer was short: tough luck.
The supply of lightly-used cars and trucks was tight because automakers had drastically cut back on bargain leases during and after the Great Recession.
Recently, though, a computer search for available used vehicles within 150 miles of Reel revealed an eye-popping figure: 668 Escapes.
That’s enough to put more than 40 per cent of the inhabitants of this small northeastern Ohio town, population 1,600, into the popular crossover.
A search for the Chevrolet Equinox, a comparable crossover, showed 461 available.
“The automakers have flooded the market,” said Reel, owner of Reel’s Auto in Orwell, Ohio, about 40 miles east of Cleveland.
That deluge is good news for used-car dealers, auto auction houses and car buyers, who stand to benefit from a bountiful supply of high quality, off-lease vehicles rolling into the US market.
By the end of 2019, an estimated 12 million low-mileage vehicles are coming off leases inked during a 2014-2016 spurt in new auto sales, according to estimates by Atlanta- based auto auction firm Manheim and Reuters.
That’s helping independent dealers such as Reel, who can turn a quick profit on vehicles bought cheaply from auction companies.
Big players like AutoNation also aim to benefit from selling late-model vehicles at a discount versus brand new cars.
Chief Executive Mike Jackson said rising off-lease car numbers means “a higher supply of preowned vehicles at a more attractive price.”
Consumers seeking great deals are in luck. Used-vehicle prices at auction fell about 3 per cent last year, according to Carmel, Indianabased KAR Auction Services Inc, which facilitated the sale of 5.1 million used and salvaged vehicles in 2016.
Used prices should drop around 3 per cent annually for the next couple of years, according to KAR’s chief economist Tom Kontos.
General Motors Co and Ford Motor Co say prices for its used vehicles, which consist largely of nearly-new ones coming off lease to consumers, fell 7 per cent in the first quarter versus the same period in 2016. GM says it expects a 7 per cent decline for 2017 compared to last year.
While many used-car dealers and their customers are spoiled for choice, the glut bodes ill for GM, Ford and Fiat Chrysler Automobiles NV and is one reason the Detroit Three’s share prices are stuck in neutral.
Demand for new vehicles is slowing after seven consecutive years of rising sales.
Meanwhile, carmakers’ discounts on new vehicles have surpassed record levels set during the Great Recession.
Those discounts have been averaging over 10 per cent of a new vehicle’s average selling price, according to industry consultants J.D. Power and LMC Automotive. — Reuters