The automotive industry was hardest hit by the economic recession and the pre-owned automobile segment has been no exception. Lower sales in 2009, due to the recession and the bankruptcies of GM and Chrysler affected all the players in the automobile industry. Considerable adjustments to new car production levels plainly reduced inventory levels and consumers feeling the pinch were hesitant to purchase cars. As we move forward and begin to see signs of improvement in terms of the economy certain trends in the pre-owned automobile industry can provide insights into future activity.
One trend that is evident is shifting consumer attitudes in response to rising gas prices. According to a recent study, more than 50 per cent of car shoppers are more likely to consider a more fuel-efficient car than the one they currently own as a result of rising fuel prices. Gas prices have been creeping up for several months as a consequence of the economic recovery, which has created more demand.
Another trend that has been developing lately is a slight rise in used-car prices. The average pre-owned automobile transaction price is at $19,345 currently, versus $16,586 in December 2009. Prices are up thanks to high demand caused by the "substitution effect." The substitution effect provokes consumers whose income has remained constant to buy more of a relatively lower-priced good and less of a higher-priced one as they struggle to maintain their living standards in face of rising prices. As it relates to the pre-owned auto market, this means that more sales are being made as buyers shy away from pricey new car models. All year long used cars were typically 10 to 15 per cent higher than they were last year. Because of the economic downturn, auto shoppers that had traditionally been new car buyers ultimately purchased used vehicles. Used and certified pre-owned cars in some cases are more expensive than new models, yet consumers do not expect this and many are no longer even considering purchasing new cars.
A third trend, one that is expected to continue due to its necessity and popularity with consumers, is the proliferation of certified pre-owned (CPO) programs. Created in the 1980s and refined during the 1990s, the emergence of CPO programs dovetailed with the surge of new vehicle leases. Many buyers who are skeptical of purchasing pre-owned automobiles fear that they will be "ripped off" or that the car may not be in good condition. As more and more buyers purchase used vehicles, the industry created CPO programs to help put to rest buyer concerns. Due to the popularity of these CPO programs, expect to see them continue for the foreseeable future.