New cars outsells used cars

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Rising prices for used luxury automobiles are driving more buyers to new-car of the same model. BMWs 2011 3-series compacts and M3 sedans are now only a mere $34 a month than the one-year-old used models, according to Edmunds.com. While, GMs Chevrolet Corvette is $12 a month cheaper than used ones.

Due to manufacturing cuts and drop in sales, there is an industry-wide shortage of used cars in the U.S. In order to improve sales, the new cars are priced in such a way that the brand-new models have effectively been priced out of the used-car market. Manufacturers plan to sell as many as 500,000 new vehicles by mid-2012 who may have otherwise bought used-models.

The U.S. auto sales have plunged to their lowest level in almost three decades, the supply of used cars out of rentals and leases have dropped drastically. Analysts estimate that low-mileage used cars will remain so scarce that many shoppers will buy a new vehicle instead of used.

The latest report from Edmunds.com show used car prices up by 10% than previous year. Some of the SUVs are priced up by 30%. According to analyst Joe Spina of Edmunds, lack of confidence is driving more people towards used-models. One to two-year-old used cars are no longer cheaper than new cars, says analysts Mark Scott of AutoTrader.com. Loan rates have also gone up by 6.49%, this will translate into more interest on the amount, which is more than the low-interest promotional loans that you can get on new models. Also with used cars need to pay for an extended warranty, which costs more for luxury brands for a three-year coverage.

Used-car price index

The Manheim Used Vehicle Value Index, which determines the largest auto-auction, estimated that used prices have had a significant run-up from late 2008. The shortage of low-mileage used models is likely to continue for some time.

While GM and Ford forecast about a 10% boost in U.S. new-vehicle sales this year including medium- and heavy-duty trucks, the deliveries is likely to remain well below the pre-recession pace. The U.S. averaged annual light- vehicle deliveries of 16.8 million vehicles by the end of 2007, according to researcher Autodata Corp.

BWM and Mercedes-Benz have taken the lead following Toyota losing production after the March earthquake in Japan. BWM sales in U.S. rose by 13% to 1, 35,114, while Mercedes recorded a sale of 1, 29,932, an increase by 7.3%. Lexus fell by 19% to 1,02, 549.

Corvette sales

Corvette sales increased by 8.4% this year to 8,187, outpacing other luxury sports cars. Sales of Nissans Z cars, the second most-popular model in the segment, have dropped 22 percent.

As Toyota and Honda rebuild their inventories in the second half, the executives at U.S. automakers and retailers expect to spend on incentives and marketing to rebound from five-year lows. This strategy would make new vehicles cheaper than the used ones.

The monthly discount for used Tacomas and FJ Cruisers has narrowed to about $20 for each model.

18 Months

According to Mike Maroone, chief operating officer of AutoNation Inc.,used cars pricing will continue to show strength for at least 18 to 24 more months. Hondas Acura TL sedan, has a monthly payment of $583 for new and $601 for used.

According to Manheim Index, new lease sales fell to 1.96 million in 2008 and 1.13 million in 2009. Lease originations that averaged 2.78 million during the previous 10 years also dried up as lenders such as GMAC Inc. and Chrysler Financial Corp. withdrew financing offers.

Leased vehicles dropped by 40% from 2002 levels, according to Manheim. Off-lease volumes will also see a drop through at least next year, to 1.53 million, according to Manheim.

Rental Inputs

Sales to rental fleets fell to 1.13 million vehicles in 2009 from more than 2 million in 2006. It is likely to be around 1.5 million this year, according to Manheim. The 2011 contribution to used-vehicle supply from rental fleets will be about 1.4 million vehicles, which is a 30% drop from 2005 levels.

Trade-ins

Trade-ins bring a lot of people into showrooms because they can get a great value on their used vehicle, which helps them get a new vehicle easily. Enthusiastic buyers are trading for Chevrolet Cruze, Ford Fiesta or Kia Forte, for their old used-ones.

A recently retired township manager from Bethlehem said he usually goes for bigger, two-or three-year-old Mercedes-Benzes or Cadillacs, but now he sees value in smaller new cars for $5,000 less.

Sources: Bloomberg, moneywatch.bnet.com

 

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