If you're shopping for a used car, expect better deals later this year. A big supply of trade-ins and cars returning from leases will push down overall used car prices by an estimated two percent in 2014, according to forecasters at automotive web site Edmunds.com.
The popularity of leasing new cars in recent years plays into expected lower used car prices. "The boom in new car leases is leading to a higher number of lease returns, which adds to the growing inventory of used cars, forcing their prices down," explains Philip Reed, senior consumer advice editor for Edmunds.
In turn, falling used car prices may also affect new car deals, especially low-payment lease offers. Lower used car prices mean lower residual values -- what a car is worth at the end of a lease. That could result in higher payments on new car leases, Reed explains. However, continuing low interest rates, especially early in the year, will help hold down lease payments.
Lower used car prices, already down 0.5 percent for 2013 according to Edmunds statistics, reverse a trend. After poor sales and leasing in recession years, few lease returns and trade-ins meant a shortage of used cars pushed prices up.
What kind of deal you get may depend what sort of used vehicle you are shopping for. Edmunds' year-end 2013 data show prices of large crossover SUVs such as the GMC Acadia down 8.3 percent, while entry-level luxury cars like BMW 3 Series were down 5.3 percent and compacts such as Honda Civic down 2.7 percent. On the other hand, prices for used large pickups like Ford F-150 and Chevrolet Silverado rose 5.6 percent last year.
In addition, notes Edmunds' used car pricing analyst Joe Spina, prices for used electric cars and plug-in hybrids like the Chevrolet Volt have dropped sharply as manufacturers have lowered new-car prices to attract more buyers. For instance, a new now Volt lists for about $33,000 -- down from $40,000 earlier. A 2011 Volt is selling for around $20,500 -- a 38 per cent reduction. If you are concerned as a used buyer about the battery life in a Volt, Spina points out that such cars usually have lengthier warranties on the battery such as the eight years, 80,000 miles on the 2011 Volt. In addition, the three-year-old Volt was just ranked tops in reliability among compact cars by J.D. Power and Associates.
A rising supply of used cars this year also could have these additional effects, according to Edmunds:
A bigger selection. You should have a better chance of finding a used vehicle with the color and options you want.
Better deals on certified used cars. Dealers sell these recent-model cars with an additional warranty and sometimes offer special financing deals with them.
Lower trade-in values. The downside for car shoppers is that their old car will be worth less. If you are considering a new car and want to trade in or sell your old one, think about shopping earlier this year while trade-in values remain higher.