Recent spate of car deals wheels bargains onto used lots
If you're one of the dozen or so people who didn't buy a car before the low-interest financing ended last month, you're probably wondering if there are any good deals left. You may have to look a little harder, but chances are you'll find them in a used-car lot.Skip to next paragraph
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Mark Bogges, a salesman at Stohlman Used Cars in Alexandria, Va., notes that ``everybody who had a piece of junk sitting in their backyards'' traded these cars to take advantage of the 2.9 percent (or lower) financing offered on new General Motors, Ford, and Chrysler cars in recent months.
``We've been flooded [with trade-ins] ever since August,'' says Leo Mason, owner of 6th & K Auto Market in Washington.
To unload them, many used-car dealers cut prices - Mr. Mason dropped his by up to 30 percent - and occasionally offered low-interest financing. [If you run into such financing, be sure to look closely: Often dealers up the sticker price to make sure they come out even.]
But the biggest bargain may not be reflected in the price or financing, says Rocky Robinson at General Trading Corporation, an Alexandria automobile wholesaler that buys trade-ins from new car dealers and resells them.
``We're buying desirable cars for a change,'' he says, because people with relatively new cars, who might not have wanted to trade in their cars yet, decided to go for the 2.9 percent financing.
What that means, he says, is that ``there's a hidden bargain for the consumer.'' He or she has a much bigger selection of newer cars with low mileage and little history of repairs.
Since the glut put a cap on prices, a car today goes for the same price (accounting for inflation) that a less desirable car sold for, say, three years ago.
A month after the incentives have ended, the glut is thinning out and deals may be harder to find. But over the long term, the trend is in the consumer's favor.
The rule is, when new-car sales are slow (because of either high prices or a limp economy), used cars are in greater demand, and more expensive.
Ted Sullivan at Chase Econometrics expects new-car sales to drop in 1987, because the recent incentives encouraged next year's buyers to purchase this year. Also, the new tax law eliminates deductions for sales taxes, which has the effect of raising the price on any big-ticket item.
Given this situation, buyers could be expected to flock to used-car lots, which would raise prices.
But Mr. Sullivan points out other forces that will likely be more powerful, forces that will have the effect of flooding the used-car market and capping prices.
For one thing, most analysts - and more important, most potential car buyers - think more new-car incentives are just around the corner, perhaps arriving as early as next month.
``I see dealerships with 90 to 120 days' inventory,'' says Robinson. ``They'll have to move those cars.''
The next round could take the form of low-interest financing, or options thrown in at no extra cost, or, possibly, price cuts. Used cars will again emerge from garages, creating too many trade-ins for too few buyers - and soft used-car prices.
In the longer term, there will simply be too many new cars for the number of buyers. GM's decision to shut down 11 plants by 1990 is an acknowledgment of this, but such measures take a long time to bring supply in line with demand.
Thus Chase Econometrics forecasts that used-car prices will decline through 1988. The trade-in price of a four-year-old car, it predicts, will continue to drop from $2,366 last year to $2,238 this year, $2,181 in 1987, and $2,177 in 1988.
Even as companies such as GM scale back, foreign models manufactured both here and abroad will flood the low-cost market, i.e., the used-car market.
Recent contenders in the $4,000-to-$6,000 range include the Yugo, Hyundai's Excel (South Korea), and Subaru's Justy, which a car that will soon be in showrooms. Future players in the small-car market include the Pontiac Opel Kadette (to be made in Korea), a Ford-Mazda car made in Mexico, the Volkswagen Fox from Brazil, Hyundai's Stellar, not to mention the Ford Festiva, which is coming out next year.
And there may be more: Toyota, which owns 15 percent of Daihatsu, may bring in a low-cost car; Nissan could bring its Micra down from Canada; and Honda is toying with shipping its City, a popular model in Europe, to the United States.
Auto analyst Kathleen Heaney at Furman Selz Mager Dietz & Birney points out that these are small cars: ``If someone wants to buy a big car, he'll have to go the used-car market.''
Prices for large used cars are unlikely to be as soft, she says.
That should be the case at least until the Big Three decide it's time for another round of incentives.