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Today’s topics:
🧠 Car Shoppers Corner: What can I do with my junk car?
📈 CDG Exclusive: Have used car prices actually bottomed?
Reading time: about 3 min 32 sec
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🧠 Car Shoppers Corner: What can I do with my junk car?
A member of the CarDealershipGuy Car Buyer Community asked: what should I do if repairing my car costs more than the car value?
You have a few options. First, I would get a few repair estimates, as prices for parts and labor vary widely between shops. A quote for a $5,000 repair from a dealership may end up costing 1/3rd of that in an independent shop that uses reconditioned parts. Given that used cars are in high demand, repairing and selling the car could end up being a good option.
If you don’t want to deal with repairs, you can list your car for sale as is, honestly disclosing its condition. You may be surprised, but there are people who are looking for non-drivable cars to purchase and repair.
There are companies that buy less-than-perfect cars from consumers: Carbrain and Cashforcars are two of them (*not affiliated with CDG). They make a cash offer and pick up your car.
Finally, you have the option to donate your car. It can result in significant tax savings if you include it in your charitable contribution deduction. You should consult with your tax professional to see whether this is the right thing to do in your situation. You’ll also have to figure out the value of the car and, in some cases, provide an appraisal.
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📈 Have used car prices actually bottomed?
Everyone is talking about the economic weakness in 2023, including the possible recession. News headlines scream about tech layoffs, below-inflation raises, declining consumer sentiment, political turmoil, and so on. Inflation is expected to have its greatest impact in the middle of the year.
New car inventory is expected to generally continue rising throughout 2023 as automakers increase their plant capacity utilization. The rebound varies by the manufacturer’s ability to deal with past supply chain issues. Jeep, GMC and Mazda have plenty of availability of vehicles, but Honda, Kia and Subaru are still recovering from shortages.
Experts estimate that in the Spring, the new car inventory will be 50-70% above 2022 levels.
TrueCar data shows that fewer new vehicles are seeing markups over MSRP.
Some dealerships need to get rid of 2022 leftovers. S&P Global Mobility reports that in December, Ford, Chevrolet, Ram, and Jeep had about 300,000 units of leftover 2022 models advertised as available for sale, which is 70% of all 2022 inventory. Mercedes-Benz and Lincoln still showed the most remaining 2022 vehicles in dealer-advertised inventory.
*Not to be confused with the “Days Supply” data that I tweeted about previously. “Days Supply” is inventory relative to demand while “dealer-advertised inventory” is an absolute number and doesn't factor in demand.
For households, economic uncertainty is a reason to hold back on new purchases. Affordability is still a big problem, especially with auto loan rates creeping higher with average new up to 8.41% and average used up to 12.88%.
Ok, so first, what will happen to the New car prices?
Some say that price drops and re-introductions of incentives are coming. Tesla’s price drop may give other OEMs radical ideas on how to fight for market share.
Kelly Blue Book reports that the average new car price declined 0.8% in January but was up 5.8% from a year ago, while the average MSRP fell 0.9% in January from December but was up 7.3% from a year ago.
Incentives as a percentage of average transaction price increased to 2.8%.
What about used cars?
Things are not so black and white in the used car territory. The data from Cox shows that wholesale used car prices went up 2.5% in January. This also happens to be the largest percentage month-over-month gain since the end of 2021.
Just in:
Used car prices officially increased 2.5% in January.
The *largest* month-over-month percentage increase since end of 2021.
— CarDealershipGuy (@GuyDealership)
Feb 7, 2023
Retail prices dropped by 0.6%, lagging behind wholesale prices as usual.
Late-model used cars are typically sourced from leases coming to term, but since leasing has been dry for a while, these late-model cars are in short supply, which means their prices will stay elevated.
Does this mean that used car prices bottomed out? I decided to dig deeper and spoke with the CEO of a large used car dealer group based in the U.S.
His take is that used car prices will not go lower in the majority of categories.
Essentially, he thinks we’ve bottomed. Is he right or wrong? We won’t know for a couple of months.
But he makes a really compelling argument with some fascinating observations about the direction of the used car market:
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