Sales of USED Cars Are No Better

With new-car sales dropping dramatically, we are left to wonder if value-conscious consumers are migrating in greater numbers to the used-car market instead. Not so, according to the chart above, which shows that the supply of used cars is outstripping demand. Wholesale used-vehicle prices fell by over 11% just in the two-month period from September 1 to October 31, as unit sales plunged by 16.5% in September and another 19.7% in October (source: Manheim Consulting).

The number of used cars sold annually in the U.S. far exceeds the number of new cars. In 2007 41.4 million used vehicles (passenger cars and light trucks) were sold, triple the number of new vehicles (13.7 million). So weakness in the used-car market is a good indicator of how the average American consumer is struggling. It is expected that in 2008 1.6 million repossessed vehicles will be added to the inventory of used cars for sale.

Defaults on auto loans will likely increase in 2009, as declining used-car prices make it more difficult for distressed borrowers to extricate themselves. For them, the most economic course of action comes to suspending payments and sparring with the repo man.