Good News/Bad News on Future Car Pricing

DGS49

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Apr 12, 2012
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A rising tide of used cars threatens Ford's profits

The car makers have been "selling" more and more new customers on the idea of auto-leasing, largely because (a) prices have gone stratospheric with the average new vehicle now selling for well over $30k, and (b) spoiled, immature buyers despair at not being able to afford to buy the cars they WANT - and they want it NOW! So they lease the car that they want.

Predictably, the used car market is being more and more flooded with nice used cars coming off lease. A flooded market means that prices for these used cars will gradually and continually be dropping over at least the next three years.

If you are a savvy buyer, this is great news. The price of that used Lexus or Mercedes will be quite reasonable, provided you shop around for the best deal. More and more used car dealers are focusing on these cars out-of-lease, as they are always in great shape, low mileage, and often have thousands of miles of FACTORY warranty remaining. And while they are not loaded up with fru-fru options, they are all well-equipped.

But the car manufacturers will bear the cost of these declining values. They guarantee the "residual values" when the car is first delivered, and if it is less than anticipated they have to eat the difference. As indicated in the article, Ford has lowered their profit projections this year because of the accumulated value of these disappointing re-sale values.

Their bad news could be your good news.
 

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