The combination of low gas prices, a record number of leases maturing, and more affordable payment options is helping grow sales in the used car market. Now is the time when car buyers can actually find a nice pre-owned vehicle at a price that’s even more affordable at nearly any used car dealership on Long Island and around the nation. From late-model used vehicles to certified pre-owned (CPO) vehicles with manufacturer’s warranty, the used car lots and franchise dealers are offering buyers abundant options going into 2016 and beyond.

According to a report in the latest National Automobile Dealers Association (NADA) Used Car Guide, about 800,000 used cars will begin flooding into auto dealers in 2016 and continue through 2018 as leases mature. This is expected to add about 33% to what’s currently available. Off-lease vehicles hitting the used-vehicle market in large numbers for the next two years include compact cars; midsize cars; compact SUVs; and midsize SUVs.

Consumers of an off-lease late-model vehicle can now reap a long line of benefits. A larger stock of used cars on the market means opportunities to find much better deals. In fact, the NADA Used Car Guide’s team estimated conservatively that the price of used-vehicles will fall by 2.5% per year over the next three years. By 2018, used-vehicle prices may be down as low as 7.3% from 2015. Used car buyers today also have the chance to take home a vehicle in much better condition because leased vehicles have certain restrictions in place to ensure what is later returned is in good condition, or face expensive fines at the end of the lease. Many of these off-lease vehicles also qualify for manufacturers’ CPO programs to ensure they continue to remain in proper working order in the long run.

Changing Used Vehicle Market

In 2015, the used vehicle market saw a record-breaking pattern with sales jumping 5.6% and the price per used vehicle sold averaging $18,500, according to Edmund.com’s 2015 Used Vehicle Market Report. According to the report:

• 38.3 million used vehicles were sold – that’s an all-time high since 2007;
• franchise dealers sold 11.4 million used vehicles (22.4% of which were CPO vehicles) – the highest in any year recorded; and
• 54% of used vehicles sold were 3 years old or younger – part of the reason to why the average used vehicle sales price hit a record high.

Used vehicle sales are expected to follow most of the trends seen in 2015. The average age of used vehicles sold is merely 4.4 years old. So, while the term “used vehicle” previously may have turned some buyers away for fears of potential trouble ahead, it can actually be a very safe bet and great deal – especially for CPO vehicles with a warranty from the manufacturer.

Demand for used vehicles, particularly CPO vehicles is expected to continue to grow. “Customers want the peace of mind that comes with the better vehicle and the warranty,” said Frank Fuzy, National Independent Automobile Dealers’ (NIADA) President in the Manheim 2016 Used Car Market Report. And even if you don’t buy a CPO vehicle, in many cases there is still the option to purchase a warranty on the vehicle.

The other driving force behind the increase of supply is trade-ins. In the report from Edmunds.com, it noted 47% of new vehicle sales involved a trade-in, which come in averaging 6 years old in age. Put together (trade-ins – 17.5M in 2015 with expectations of an increase to 18.1M in 2016 and leases steadily approaching their maturity date – a spike of 26% over 2015), 2016 is expected to build on the record-breaking patterns set in 2015.

Changes in Car Shopping Experiences

Technology has changed the consumer shopping experience in many sectors, including the car buying market. Today you have customers who have completed research before even stepping foot into a dealership. In some cases the car buyer may have already researched payment options, submitted a credit application, and even received a trade-in value for their existing car all online. What this means is those in the car sales market must advance its digital offering so that shoppers have all the information they need in hand to complete a transaction by the time they enter a dealership. In fact, a growing number of car sales are a result of Internet lead-to-sale opportunities. Shoppers are looking to “self-select or self-educate” before entering a dealership, according to Raj Sundaram of Cox Automotive in the Manheim 2016 Used Car Market Report (PDF). Technology has allowed a much more streamlined process to assist in a speedier transaction when buying a vehicle.

Leasing a Used Vehicle

In 2015, the most leased vehicle was the Honda Civic, according to Experian Automotive in its quarterly State of Automotive Financing report. What this is telling you is leasing options aren’t just limited to luxury model cars anymore. Leasing in general has reached an all-time high as consumers are looking into ways to keep monthly payments affordable.

According to Experian Automotive’s report, leasing accounts for nearly 27% of all new vehicle transactions and the average monthly lease payment was $398 during the quarter. “As the price for new or used vehicles continues to rise, leasing has become a more viable financing option for consumers looking to maintain an affordable monthly payment,” said Melinda Zabritski, Experian’s senior director of automotive finance.

Financing a Used Vehicle

The benefit of financing a used vehicle is that it’s yours in the end. Ultimately, a dealer’s ability to discount the rate of the auto loan can be a driving factor in competing for the sale. As borrowers are now allowed to take on more debt, what’s being seen is a trend of loans running for longer periods to make payment options more affordable to the buyer.

According to Experian, used-car financing averaged $18,850 in the fourth quarter of 2015 – a 2.4% increase. In 2016, “the best rates for both new and used car loan rates will stay below 4 percent,” said Chief Financial Analyst Greg McBride for Bankrate.com in a U.S. News & World Report article on current auto loan rates. However, McBride also advises that by the end of the year rates may go up to around 5% for new cars and 6% for used cars – but still considerably historically low.

In some cases, “zero-percent” loans are being offered, but does this really mean you’re getting money without paying interest? No. What’s happening is it’s packed in with the purchase price.

As a consumer of used cars, there are different variables to play with and factor in deciding where the best deal is in the market. With the used vehicle market expanding with more off-lease vehicles coming into inventory, there is much to look forward to for consumers and dealers alike.

References:

• J.D. Power: “NADA Report Suggests Off-Lease Supplies to Boost Used-Car Sales” – December 11, 2015
• Edmund.com’s 2015 Used Vehicle Market Report
• Manheim 2016 Used Car Market Report
• Experian Automotive: State of Automotive Finance Market – 2nd Quarter 2015
• U.S. News & World Report: “What Are Current Auto Loan Rates?” – February 15, 2016