Buyers can get a deal on new, used cars — but it won’t last long

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If you’re considering a new or used car purchase, now may be the time to get a killer deal as the auto industry creeps out of the coronavirus shutdown and ramps up in the next month or so, industry experts say.

That’s the good news.

The bad news: If you have a car to trade-in, you won’t get as much for it. Wholesale used car values have plummeted and likely won’t fully recover until later this year.

“If you have the ability to go in and buy a car without doing a trade-in — if you can keep your car for two or three more months — — I’d advise that,” said Jonathan Banks, vice president of Vehicle Valuations & Analytics at J.D. Power. “If you already own your car, it’s a no-brainer, buy now.”

In mid-March new-vehicle production came to a halt as the automakers idled U.S. assembly plants to protect workers from the coronavirus pandemic. Then, most new and used car sales sputtered to a stop in many states as shelter-in-place orders went into effect and some banned car sales for a period.

In the interim many car dealers have stocked up on new-vehicle inventory, anticipating pent-up consumer demand. Soon, their used-car inventory will be thick, too.

Manheim Detroit Auction will start selling used cars again Thursday after a month of sales shutdown due to restrictions under Michigan’s shelter in place order. The wholesale value of used cars has plunged making them cheap for dealers to buy, though bad for consumers who want to sell them on trade in.

No fire sale yet

Banks said the end result will be a short-term imbalance of supply versus demand. There will be more new and used cars than initial consumer demand, making it a buyer’s market. But the window to get that good deal will be “pretty short” between mid-May through mid-July, he said.

“There are a bunch of vehicles that normally would have been sold by the rental companies and the captive finance companies at the auctions. That pool is growing and they’re in parking lots or automakers have extended leases,” said Banks. “We think that number will be up to 800,000 vehicles by the middle of May. Those need to enter the market.”

But the volume of used vehicles that goes through the used-car auction plunged since last month, bringing wholesale used vehicle prices tumbling down. The prices decreased about 12% comparing the first 15 days of April to the month of March, according to the Manheim Market Report.

“We’re seeing a huge drop-off in demand. It is starting to rebound as dealers are opening back up to a degree,” said Matt Trapp, Manheim’s regional vice president. “We saw demand drop to 20% to 25% prior to what it was prior to the shelter in place mandates. It’s starting to rebound a bit.”

Despite the drop in wholesale prices, don’t look for dealers to offer a fire sale on used cars just yet. J.D. Power data show retail used prices are down only 2% compared to what they were before coronavirus escalated, said Banks.

Jonathan Smoke, Cox Automotive’s chief economist, agrees the stability in used-car retail prices indicates that dealers view the market downturn as temporary.

“Traditionally, retail prices fall when wholesale prices fall, but we’re not seeing that in the data right now. Retail prices for used cars are mostly stable in the market,” said Smoke. “The fact retail prices have been stable shows dealers have not yet had to lower prices to sell the vehicles they’re selling.”

Used-car auctions

Manheim Detroit Auction in Carleton, about 40 miles southwest of Detroit, is one of 139 Manheim used-car auction sites in North America.

It’s open only to car dealers — the public cannot participate. Most of the used cars that are sold there are three to six years old. About a quarter of them come from dealers who took them in on a trade. The rest come from bank repossessions, off-lease vehicles or rental car or other fleets. It does about $2 billion in used-car transactions a year.

On March 16, Manheim decided to close down the live auction lanes and do simulcast-only sales at all its locations, thereby sidelining the chaotic flow of cars and closing the doors to the hundreds of bidders that pass through the lanes, Trapp said.

The auctioneers still came in, stood on the auction blocks to call out the bids via simulcast as car dealers across the country viewed the used-cars and read the condition reports on their computers, remotely making purchase offers. In some locations, a fraction of employees came in help move and secure inventory, inspect used cars and do some reconditioning work on the vehicles, said Trapp.

Manheim Detroit ceased all operations on March 23 when Michigan’s shelter-in-place order went into effect, Trapp said. Only about 10 of its 400 personnel came to the facility to mostly secure the cars.

Thursday Manheim Detroit reopened with digital sales again, Trapp said. He cites the federal CISA 3.0 revision that designates the automobile sales industry “as critical infrastructure, and many states officially adopted CISA as the framework for designating businesses as essential.”

The sale of used cars in auctions has been important for car dealers to maintain cash liquidity even if wholesale prices are depressed, Trapp said.

“Dealers are still bringing cars to the auctions because they need the cash,” Trapp said. “Every car they sell allows them to keep their business going and keep their employees employed.”

But there remains a glut of used-car inventory that needs to sell and land on dealer lots, Trapp said.

“Our inventory levels have grown and our lots are more full than they’ve ever been,” Trapp said. “We’ll be in some form of a digital-only world for a while … to figure out how to thin inventory and keep sales flowing.”

Make way for new models

Used wholesale prices are expected to improve as the markets become less restrictive in May and June, J.D. Power forecasts.

J.D. Power expects wholesale prices to bottom out in June falling to 8% and 11% from pre-virus levels. Then used prices should improve through the remainder of the year with prices back to pre-virus levels toward late 2020 or early 2021, making trade-ins a better deal for consumers.

In the new car market, things look promising, too. Typically March, April and May are strong months for new vehicle sales. The pandemic likely deferred that trend, but didn’t kill it, some say.

“It’s also a time when the vehicle manufacturers are starting to get rid of the old models because they have new model years coming in,” said Martin French, U.S. managing director of Berylls Strategy Advisors, a small automotive consultancy in Royal Oak.

For example, General Motors has the 2021 redesigned Chevrolet Tahoe and GMC Yukon full-sized SUVs due to go on sale this summer and Cadillac Escalade expected in the third quarter. Ford Motor Co. has the redesigned 2021 F-150 pickup coming by year-end and Fiat Chrysler Automobiles has the redesigned 2021 Jeep Grand Cherokee SUV due out later this year.

“So there’s a lot of anticipated brands and vehicles that are popular and the cash cows for GM, Ford and FCA,” French said. “They’ll get pushed back a little bit. So what you’ll see is a lot of stock at dealerships and their liquidity will be lower, so they’ll need to sell inventory.”

Messed up market

Recent data show retail car sales are starting to stabilize, even show signs of recovery.

For the week ending April 19, retail sales were down 48% from the pre-virus forecast, an improvement of 3 percentage points from the week ending April 12, said Tyson Jominy, vice president of data and analytics at J.D. Power. But about 301,000 new vehicles were sold month-to-date through April 19, a decline of 51% compared with the pre-virus forecast.

For consumers, there are deals to be had. Many carmakers are enticing buyers with attractive discounts. The Detroit Three, Subaru, Hyundai, Kia, Volkswagen, Audi, Volvo and Jaguar Land Rover all have 0% finance offers with extended terms of 72 months or longer, Jominy said in a report. Jeep is offering employee pricing on some models and many brands have a three-to-six months deferred payment for new buyers.

Besides super financing deals, there is another reason this is shaping up to be a good time to buy a new car: GM, Ford and FCA have all tapped into their lines of credit to get through the coronavirus crisis.

“All the major companies, they’ve all drawn down on revolving credit lines and so liquidity will be an issue and the car companies will want to ramp-up production and get their new vehicles in the marketplace,” French said. “It’s going to be a really interesting time.”

If history is any indicator, Banks said used cars might outsell new cars initially coming out of the coronavirus shutdown.

“But the one difference this time is, usually when this happens it’s an economic problem, like an economic shock, so there is some argument that used won’t be as attractive as it was in prior recessions,” Banks said.

But there will be a lot of used vehicles for sale and more coming as about a million vehicles, three years old or newer, due to come off lease, French said. Many of those could end up in the used-car showroom, “at affordable prices,” Banks added.

“And, there’ll be many people who will be less confident in their earnings, too” and prefer a used car rather than a new car, Banks said.

But, he admits, it’s hard to beat free money on some of the 0% interest deals for new cars.

“If you’re a consumer who needs to replace a car your position is awesome. I’m thinking of buying one,” Banks said. “But you’ve got to wait a few weeks though. Right now, the market is still so messed up that it’s not even acting normal.”

Contact Jamie L. LaReau at 313-222-2149 or Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter


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