There are fewer used cars for sale and used car prices rising. As we wrote a few days ago used car prices on many vehicles jumped 10% from March to April, and many of these same automobiles maintained their values once again through May.
One specific example is a used Chevy Aveo. As we reported in April a 2009 Chevrolet Aveo LT's base retail used car price, according to NADA guides increased 10%. In May, the average used car dealer price increased again from $12,200 to $12,350. This is incredible; a 2011 Chevrolet Aveo on the dealer's show room floor is a new car under $15,000.
There are a few reasons for this phenomenon; gas prices, tsunamis, and the economy in general are contributing to this. The biggest single reason, however, that pre-owned car values continue to increase is historical new car sales volumes.
New Car Sales
The following chart outlines the total new car sales over the last four years:
New Car Sales
Today, used car buyers are looking for late model, low mileage, used cars. But as you can see from the cart above, there are 11,000,000 less pre-owned cars for sale today because of slacking new car sales in 2008, 2009, and 2010.
As used car prices rise and get closer to their new car counterpart, especially cheap new cars like the Chevy Aveo, more and more American car buyers will opt to buy new cars instead of used.
High pre-owned car prices will also affect used car financing. We predict that many lenders that finance used cars will start to limit their Loan to Value approval amounts. In other words, lenders view these price increase temporary, so they are likely to limit the approval amount to what they were before the values rose. Used car buyers will need higher credit scores or more money down to qualify for used car financing.
Due to higher used car prices and used car finance sources limiting their advance amounts, many auto shoppers will search for good deals on new cars for sale as an alternative to pre-owned vehicles.