NATION Prices on used cars expected to flatten out

Used-car prices have been falling 3 to 5 percent per year, but experts say the trend is about to end.
BALTIMORE SUN
The United States' great used-car sale -- which has provided consumers the lowest prices in years -- is drawing to a close, according to industry officials.
"I said it a year ago, and I'll say it again: 'There has never been a better time to buy a used car,'" said Raymond C. Nichols, chairman and chief executive of Bel Air, Md.-based BSCAmerica Inc., which operates car auctions. "But those days are coming to an end."
He said prices on popular-model used cars, which have been falling 3 percent to 5 percent annually in recent years, and even more on less exciting models, "are expected to flatten out in 2003."
"The great bargains are about to become a thing of the past," said George E. Hoffer, an economics professor at Virginia Commonwealth University in Richmond and an automotive analyst.
Hoffer and Nichols both point to the same factor in supporting their projection of higher prices in the year ahead: a meaningful decline in the number of used cars on the market.
Cutting back
Nichols said auto rental companies cut back sharply on the number of cars in their fleets in response to the sudden drop in travel after the Sept. 11 terrorist attacks. That means there will be fewer rental cars showing up on used car lots next summer.
Hoffer said a decline in the popularity of leasing in recent years also is cutting into the number of used cars available in the years ahead.
David E. Cole, president of the Center for Automotive Research in Ann Arbor, Mich., said an anticipated dip in new car sales in 2003 also will have an impact on used car prices.
"Zero percent financing resulted in a lot of trade-ins in recent years," he said. "The industry expects the number of trade-ins to decline in the year ahead."
According to Nichols, the cost of 3-year-old used cars has been declining 3 percent to 5 percent annually since 1998.
He said prices of some of the less popular models, such as midsize domestic sedans with bad colors and lacking popular options, have been falling 7 percent to 8 percent a year.
Raises new car costs
While this has been a boon to used car buyers, it has increased the cost of buying a new car.
"A lot of consumers have been getting less money for their trade-ins than they expected," Nichols said.
He said that, in recent years, cars have been depreciating at a faster rate than any time in the 1970s, '80s or '90s.
Nichols' advice to buyers looking forward to maximum trade-in value of their cars: "Pick the most popular color. Equip it will with all the options that Americans like on their cars -- all the bells and whistles."
Nichols said the hottest segment of the used car market today is in vehicles selling for $10,000 or less.
He said there is no stigma attached to owning a 2- or 3-year-old car.
"Body styles change so little, that, unless you're a real car person, it is difficult to tell that a car is a couple of years old," Nichols said.
Although used car prices are expected to rise next year, Hoffer said the consumer will still have some negotiating clout.
"Used cars are like a tomato," he said. "The dealer has to move them fast. They have lots of money tied up in them. They are difficult to store, and a car sitting on a lot ages rapidly. The tires begin to go bad and the battery begins to go bad from no use."