High used-car prices make it ideal time to sell

[May 18, 2011]  DETROIT (AP) -- It's the best time in years to sell your car.

People are holding on to cars and trucks for about a year longer than they did before the recession, which has created a tight supply of used vehicles. So few are on the market that prices have risen to their highest in at least 16 years.

Dealers are paying an average of $11,660 for a used car or truck, up almost 30 percent since December 2008.

"You're not going to find a situation like this very often," says Jonathan Banks, executive auto analyst for the National Automobile Dealers Association used car pricing guide.

The run-up in prices for used cars has been so dramatic that it almost doesn't make sense to buy them anymore, says David Whiston, an auto analyst for Morningstar. That's probably a good indication that prices are at or near a peak.

"For just a little bit more I can buy a brand-new car," he says. "There's a tipping point. I think we are getting very close to seeing that."

Take the Honda Accord, known for reliability and holding its value. A dealer would sell a 2008 four-cylinder Accord LX sedan in good condition with about 45,000 miles on it for $16,175.

With no down payment and a loan at 5 percent interest, it would cost $373 a month to pay off the Accord in four years. But Honda is offering a three-year lease on a new 2011 Accord for just $250 a month. The company will even make the first payment. You still have to pay $600 up front and 15 cents for each mile you drive over 12,000 a year.

In Greensboro, N.C., Jeremy Barnes and his wife are expecting their first child, so they decided to replace a white 2007 Accord with a bigger, new vehicle. He wasn't sure what they could get for the Accord when he checked prices on the Kelley Blue Book website.

"I was pleasantly surprised," says Barnes, 30, a heating and air conditioning equipment salesman.

He's asking $15,200 for the car, which is in good shape and has 47,000 miles on it. While waiting for a buyer, the couple are looking at vehicles like the Jeep Grand Cherokee.

The rise in used-car prices is a byproduct of the recession. The average car on the road now is 10.6 years old, according to the Polk research firm. That's up from 9.8 years in the middle of 2007, a few months before the recession struck and people began to rethink major purchases.

Another source of used cars got choked off when credit tightened during the 2008 financial crisis and car companies cut back on leasing new ones. Companies sell leased cars as used when leases expire.

Japan's earthquake and tsunami are also driving up the price of some used cars. New models of some small cars, such as the Toyota Prius and Honda Fit, are expected to be in short supply. Dealers are buying used ones to sell in their place. That won't last, though.

Manheim, a big auction house where dealers buy used cars, says prices this year are the highest since the company began collecting data in 1995. Tom Webb, chief economist there, predicts that used-car prices will rise for around two more months and then level off. They may fall in 2012 and beyond as more used cars come on the market.

There are already signs that used-car prices will come down. Leasing was 21 percent of U.S. sales in February, which was up from 11 percent in 2009, according to Experian Automotive. That should bring more used cars onto the market as three-year leases end.

Banks and auto company finance arms have also loosened up credit for people with poorer credit ratings, meaning more buyers can get a loan for a new car.

[Associated Press; By TOM KRISHER]

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