Dearth of recession-era vehicles puts budget-conscious buyers in a bind
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June 26, 2019 08:38 AM

Dearth of recession-era vehicles puts budget-conscious buyers in a bind

Jackie Charniga
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    A Nissan dealership in Fairfax, Virginia, on Aug. 23, 2009. New-vehicle sales dropped to a decades-low of 10.43 million in 2009 and took several years to rebound to normal levels, helping to deplete the supply of used vehicles priced below $10,000 in recent years.

    The new-vehicle sales slowdown of the Great Recession is adversely impacting used-vehicle inventory today, particularly when it comes to customers with budget constraints, according to CarGurus.

    Finding inventory at prices below $10,000 is a challenge for dealers because the vehicles that should have aged into that price point were never sold, says George Augustaitis, director of automotive industry analytics at CarGurus.

    New-vehicle sales dropped 21 percent in 2009 to 10.43 million units, according to the Automotive News Data Center, and took several years to rebound to normal levels. Because of that plunge, used-vehicle inventory priced below $10,000 has been declining since last year, CarGurus says.

    "There is a demand for these vehicles; there's just a lack of supply we haven't seen in years," Augustaitis said.

    The fact that consumers are holding onto vehicles longer than ever before also prevents dealers from acquiring lower-priced vehicles. Augustaitis, citing IHS data, noted that the average length of ownership in 2018 was 7.4 years, meaning that 2009-11 model year vehicles are likely idling in customer garages rather than dealership lots.

    The drought most impacts the most cash-strapped customers, Augustaitis said. When customers struggle to find used vehicles in their price range, they could be bumped up to the next highest price tier. However, paying even $3,000 more for a vehicle has a demonstrably larger impact on the lowest percentile of shoppers. For example, the difference between a $30,000 vehicle and a $33,000 vehicle is 10 percent, but a shopper accustomed to a $10,000 price point would be paying an additional 30 percent to get to $13,000, Augustaitis said.

    "That's enormous at this level," he said.

    Aging inventory

    The average and median age of vehicles below $10,000 in 2011 was 9 years, according to CarGurus. Today, vehicles at that price are now closer to 11 years old. The older the vehicle inventory is, the more difficult it will be to get those vehicles financed.

    "A lot of banks don't want to finance vehicles that have 120,000 miles ... or are 11 years old. And if you do get financing on it, it's probably going to be for 36 months," Augustaitis said. "These price-sensitive shoppers might not be able to make that payment."

    An older vehicle is also more likely to require maintenance work, which could mean a vehicle at a manageable price could end up costing customers more down the line. Augustaitis says that a vehicle even two years older "is going to have more miles than it did. It's going to have more wear and tear, and there's going to be things that start to give."

    Dwindling supply

    Franchised and independent dealers voiced their concerns about used-vehicle inventory below $10,000 as part of the latest Cox Automotive Dealer Sentiment Index survey. Dealers representing a variety of brands across the U.S. said that vehicles under $10,000 with low mileage and in good condition are becoming increasingly difficult to find.

    Augustaitis predicts that vehicles priced around $10,000, mostly sedans, will return to market in 2022. Around 2025, the supply of used vehicles below $10,000 will be more SUV-heavy. Until then, he says, dealers need to be creative in obtaining used-vehicle inventory and should work with customers to get financing they can afford.

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