Tuesday, September 30, 2008

Is the economy driving car prices lower?

The recent financial crisis and economic turmoil appears to have an effect on car prices. This is not surprising given that people generally become more conservative in poor economic climates and hold off on making big purchases.

In the automotive marketplace, new car dealers are going to see fewer buyers which will pull actual selling prices down. But for used car transactions, whether it's at a retail used dealer or private party transactions, we could see either stable/slightly increasing prices OR falling prices. Which way the prices will head towards will be determined by the vehicle make/model.

For example, the used market for luxury, SUV, and other gas guzzling vehicles are likely to deteriorate while the used market for hybrids, compact/economy, and gas efficient cars will thrive. With the economy headed for an apparent recession and gas prices still near record highs, people are dumping luxury cars, SUVS, and gas guzzler vehicles. The Ford Expedition or the BMW 530i that used to sell for $30k just a couple of years ago has no takers unless the prices drop below $10k.

In a quick scan of the online classifieds, dealers and private individuals are still using KBB or Edmunds to list their luxury, SUV, and gas guzzler vehicles at above market prices. However, after the negotiations are over and when the car or SUV is sold, the real selling price is often much lower than the listing price and the published KBB or Edmunds price.

Let's take a look at the KBB private party transaction value for a 2003 Ford Excursion V8 4WD:

KBB Good Condition: $10,255

However, a quick scan of the PriceHub database shows just one of three 2003 Ford Excursions as having sold for more than $10,000 in the last 3 months.


For the hybrids, compact/economy, and fuel efficient cars, the real selling price will likely be closer to the listing price if derived from published KBB or Edmunds price.

What does this all mean? This means that the changing economy is affecting real market pricing for cars & SUVs, and the best way to get a good sense of the real selling price is to look at actual transaction data instead of the so-called published KBB or Edmunds price.

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Anonymous said...

With the way that the economy is going out, aside from there would be a lot of cars going out of the market, there would also be lots of employees from this car companies to be laid off. I think this could make car prices go higher, I just hope that there would be a good rescue to this companies.

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Enterprise Used Vehicles said...

There is a shortage of used cars because we are in a recession and consumers are keeping their cars longer than they did in past years. In addition, there is a huge demand for efficient cars and hybrids due to high gasoline prices.
The recent disaster in Japan is another factor.