Do the math: Older used cars in short supply

Joe Taschler
Milwaukee Journal Sentinel

The Great Recession’s ghost is suddenly appearing at used car lots across the United States.

The situation amounts to a collision between timing and math: When the auto industry imploded in 2009, the number of vehicles it produced fell sharply, with the decline lasting more than two years. Fast forward to 2017 and there are fewer cars from those recession model years available to budget-minded buyers in the used car market.

“There’s a big-time shortage because of that lack of new car sales,” that began in 2009, said Ivan Drury, senior analyst for automotive consulting firm Edmunds.

Meanwhile, explosive growth in the leasing of new cars has sent even more upheaval into the market, as a flood of 1-, 2- and 3-year-old cars come back off lease and end up on dealership lots.

“If you’re looking for a 2009 or a 2010 model, your odds are not all that good because we simply didn’t sell that many,” Drury said. “If you roll that together now with this explosion of leasing in 2012 and 2013 and even higher for 2014, and we have this kind of lumpy, bizarre supply line that I really can’t think of that we’ve seen ever.”

That supply situation plays right into the wheelhouse of Jordan Paszek, a 24-year-old who is in his first job post-college at an actuarial firm in Illinois.

Paszek is ready to buy a car to replace his 1999 model that has about 175,000 miles on it. The car has served him well, but it’s time for an upgrade.

“It’s been a goal that I’ve had for a handful of months,” said Paszek. “I’ve probably been aware of it for over a year, that I would need to upgrade my car at some point.”

However, Paszek also is carefully budgeting to deal with student loan debt after four years at Dominican College in New York and a year of post-graduate work at the University of Wisconsin at Madison.

“I was not even considering buying anything new,” he said. A newer model used car is “what I’ve been targeting the last month or two,” he said.

A newer car that was part of a fleet or is coming back off lease is “the sweet spot in terms of absolute value — what you are paying for what you are getting,” said Jim Tolkan, president of the Automobile Dealers Association of Mega Milwaukee and a former GM dealer.

That’s because there are so many of those vehicles that are coming in off leases.

Look for that trend to continue. “There was a significant increase in 2016 over 2015 in late model used cars coming into the market, and I think it peaks between 2017 and 2018,” Tolkan said. “There will be a peak because of so many lease deals.”

The flood of newer model used cars coming off lease and entering the marketplace is putting downward price pressure on some of those models, even as the average price of used cars rises because of the fleet’s age: Younger cars cost more.

So your older trade-in is likely worth more than it was at the same time last year, and the newer used car you might be considering might be a bit less expensive than it might have been last year.

“That’s what I’m hoping,” Paszek said.

But what if you are looking for something older in the $8,000 to $10,000 range?

“It’s going to take a little bit more internet research and expanding your radius,” to find it, Drury said.

Besides fewer sales of new cars during the recession, the federal government’s Cash for Clunkers program pulled nearly 700,000 cars out of the nation’s fleet in late 2009. The program required that the cars be destroyed and scrapped.

Dealers in southern Wisconsin say they are doing their best to keep the older model vehicles in stock.

“When you start looking at the price range of $8,000 to $10,000 retail, there’s not much around,” said Jim Griffin, president of the Griffin Automotive Group of dealerships in metro Milwaukee. “They are hard to find.”