Used car prices will fall in 2014, NADA economists say

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NEW ORLEANS -- Used cars should get cheaper in 2014 after five years of consistently rising prices, National Automobile Dealers Association economists said today.

But analysts from the NADA Used Car Guide insisted this is not a sign of a bursting bubble.

The average price of a used car rose by 18 percent from 2007 to 2013 as cash-strapped consumers opted to buy used cars rather than new ones. Used car prices are now roughly 10 percent higher than the average price of the past couple decades.

Some analysts have examined that trend and predicted a "correction" -- a collapse in used-car prices, bringing them closer to the historical average. ALG, the residual values specialist, predicted in late 2012 that used-car prices would fall 8 to 10 percent over the next few years.

"When you look at [the graph], it's frightening," says Jonathan Banks, executive automotive analyst for NADA's used car guide. But he insists the reality is not that scary.

Today at the NADA convention in New Orleans, Banks predicted that the price of used cars up to eight years of age will fall by 0.5 to 1 percent in 2014, with the drop being driven by a wave of off-lease cars that were leased a few years ago as the recession ended and financing became more available.

But Banks said the market remains in a solid position.

"When people talk about a correction, well, in fact we don't believe there is a correction," Banks said. "We've seen prices improve based on fundamentals -- not based on psychological changes in demand like we saw with the housing bubble or the Internet bubble."

Banks said the elevated price of used cars is a "new normal." Used car supply remains depressed by the collapse in new-car sales in 2008 and 2009. At the same time, demand is high due to a growing economy, falling unemployment and readily available credit.

Also today, NADA predicted that 16.4 million new cars and light trucks will be sold or leased in the United States this year, up 6 percent. Banks predicted that the used-car market would tick up slightly in terms of sales, with roughly 42 million units sold nationwide.

You can reach Gabe Nelson at gnelson@crain.com.


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