When it comes to new cars, the sedan segment is dying. Honda has been struggling to sell it’s tried-and-true Accord and Ford will soon abandon the sedan market almost entirely. Since no one is buying them you would think buyers could score a deal on a cheap pre-owned model, but currently, that isn’t the case.
According to a report in Automotive News, dealers and wholesalers are noticing an upward trend in priced for sedans and small cars in the $10,000 to $15,000 segment. The major problem, of course, is supply. The used car market is a reflection of the new car market; you can’t have pre-owned cars if no one buys them new. Since buyers have been flocking to crossovers and SUVs for the past several years instead of sedans, price-conscious shoppers looking for an affordable used four-door are facing a limited inventory.
“The vehicles that retail under $15,000, and especially those you can retail under $12,000 — there’s not enough of them,” said Brandon Caldwell, retail operations manager at Friendship Ford in Bristol, Tenn., which sells 80 to 100 used vehicles per month. “Dealers know that, so when you go to the auction to buy these cars, dealers are paying much more than they were a year ago because of the demand.”
Retail prices for 3-year-old compact cars at franchised dealerships have reached unexpected highs, with the average transaction price rising 3.9 percent in the first quarter to $13,464, according to Edmunds’ latest used-car report. Overall, prices for all used cars regardless of age rose 2.2 percent to a record $19,657, Edmunds said. Meanwhile, at Manheim’s wholesale auctions, compact car pricing rose 5.7 percent in May, stronger than for pickups and SUVs.Analysts say the price increase is notable.”
A combination of rising transaction prices and interest rates are pushing more people into the pre-owned market. Some analysts point to the fact that Chrysler and Ford’s shift away from small cars and sedans are also having an impact on used cars, but that is still up for debate.
What is clear is that buyers that don’t have the budget or the credit to qualify for the incredibly long loans or special finance rates coming from the manufacturers are now in a market segment where supply and demand isn’t working in their favor.
Here’s more from Automotive News:
Even though small used cars cost more to acquire, dealers can’t afford to pass that on to consumers, said Robert Sickel, vice president of Pine Belt Enterprises in Lakewood, N.J., a dealership group selling Chevrolet, Chrysler, Dodge, Jeep, Ram and Subaru vehicles.
“I’m not sure raising prices is the right move as we are getting more leads on the cheaper vehicles,” Sickel said.
However, what buyers in this segment need to realize is that because dealers are paying more for these sedans and small cars, there is going to be even less margin for negotiations. As I’ve mentioned before, due to online advertising strategies, the used car market in general no longer has thousands of dollars in markups built into the price. Buyers looking for used cars should focus more on value than the discount.
The $10,000 to $15,000 price point can be a challenging one because it occupies a zone between scoring a value on a private sale, which is typically found in the sub-$10,000 range, and the competitive overlap between used and new cars that are more often found in the $15,000 to $20,000 range.
Shoppers looking for an affordable sedan or small car should spread their search net beyond their immediate region as sometimes metro areas with more dense inventory will push local prices down. Of course, with any pre-owned car, it is highly recommended that buyers get an independent pre-purchase inspection to make sure the vehicles’s condition is sound.