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Sticker shock: Prices for used cars plummet


A sign at European Motorcars, Iowa’s largest Mercedes-Benz and BMW dealer, says it all: For $299 a month, and the right-sized deposit, a car buyer can drive away with a new BMW 325.

Such deals are putting a pinch on sales of used cars.

Huge incentives offered by auto manufacturers to lure car buyers into showrooms and low interest rates are making it a great time to buy a new car. And as consumers increasingly turn to new cars, prices for used cars are plummeting.

Last month, new car sales were up 4 percent nationwide from June 2002. Sales of used cars, however, are slumping, sliding 6.3 percent this year.    Used cars have lost, on average, nearly 11 percent of their value in the past year, according to the Manheim Used Vehicle index.

Prices for older cars, not surprisingly, have been hit the hardest, according to a recent report by the Federal Reserve Bank of Chicago. But the drop has not left many pockets of the auto market untouched, and even sales of once-hot cars are flagging.

“Unless you’ve got a Porsche to sell, it’s a terrible time to sell used cars,” said Nicholas Webster, an analyst at Wells Fargo Financial. “I mean, used Audi TTs are struggling right now.”

The prices are falling so fast that traditional measures that consumers use to help them gauge where they should price their cars, such as the Kelley Blue Book, can’t be revised quickly enough to keep up, according to Dave Mehmen, the new car sales manager at Karl Chevrolet Inc.

“It’s a buyers’ market,” said David Turner, a sales consultant for Jordan Motors, a Volkswagon and Audi dealership. “You’re going to get a great deal on a 2003 car, but [depending on the make] you’re going to be upset at what your 2002 trade-in is worth.”

Five years ago, it took roughly 30 weeks of the average worker’s salary to buy an average-priced used car. Today, it takes 19.9 weeks.

In some cases, used cars are piling up at lots around the nation. In Iowa, car dealers say the effect has been muted and they say they’ve taken steps to deal with the challenge.

“Don’t get me wrong, the used car market is still competitive,” said Jim Bintner, the general manager of Charles Gabus Ford/Kia. “But the new car market is very competitive.”

Bintner said his lot has more new cars than usual because it has stocked up in anticipation of increased sales. It is carrying about the same number of used cars as in past years, and has sold more used cars than it did a year ago.

“Even if you can get 0 percent interest on a $20,000 vehicle, 5 percent on a $10,000 vehicle is still going to be a lower payment,” he said.

In many cases, new car dealerships are turning to wholesalers to buy the cars they receive as trade-ins, rather than have their used car inventories rise, which increases their expenses.

“It’s cheaper [for dealers] to buy used cars at auction, and that savings is passed on,” said David Turner, a sales consultant at Jordan Motors.

Mehmen says Karl Chevrolet occasionally offers special used car interest rates of 2.9 or 3.9 percent, but that some buyers can get new cars for almost the same monthly payments as a new vehicle costs.

“That’s what people turn to, because they can get warranties and a brand-new car,” he said.


As automotive sales meander, foreign automakers are claiming an ever-greater market share. Toyota Corp., Honda Motor Co. and Nissan Motor Co. are managing to increase their U.S. sales significantly while offering fewer incentives than Ford Motor Co. and General Motors Corp.      Sales of vehicles from Ford slipped 0.1 percent last month from June 2002. GM fared slightly better, with its sales ticking upward a scant 1.3 percent. Sales of DaimlerChrysler sales rose 7 percent.

Meantime, American Honda sales were up 8.7 percent, Toyota’s sales rose nearly 11 percent, and sales of Nissans, helped by the company’s popular new 350Z sports car, shot up 21.5 percent.

Sales by the Big Three, Ford, G.M. and Chrysler, now account for 60.6 percent of the market, down from 62 percent in the first six months of 2002.

“There’s incentive fatigue right now,” Michael Wujciak, vice president of global automotive consulting for Cap Gemini Ernst & Young, recently told The New York Times. “The only think that’s going to bring the consumer in is some new, exciting metal.”

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