In the market for a late-model used car? Be prepared to pay more for it than you would have a year or two ago.
Used vehicles are hot and the market seems willing to tolerate higher prices, say Canadian auto industry analysts at DesRosiers Automotive Consultants.
According to a study conducted by DesRosiers, residual values of three-year-old used passenger cars have risen from 49.0% in 2010, to 50.8% in 2011, to 54.6% in 2012.
They were as low as 45% in 2008.
DesRosiers' study is based on analysis of residual value data for three-year-old used passenger cars determined by Canadian Black Book, which constantly tracks used-car sales and prices across the country
Residual value is the price of a used car as percentage of its price when new.
Light trucks have also seen price increases, abeit not as dramatically, climbing from 48.2 percent in 2010 to 50.6 percent in 2012. The used-truck market bottomed out in 2009, when residual values for three-year-old trucks fell below 35%.
Why prices are up
It's all a result of supply and demand. While the demand for good late-model used vehicles has remained solid, the supply has diminished, largely as a result of fewer off-lease and fleet vehicles coming into the market.
During the recessionary period in the latter years of the past decade, DesRosiers explains, Canadians were forced to modify their purchasing habits when vehicle manufacturers pulled back their leasing programs.
As a result, the leasing dropped from 42.4% of the total vehicle market in 2007 to just 7.1% in 2009. As a result, far fewer three-year-old vehicles are coming off-lease, and available for sale, in 2012.
Some of those lost lease sales in 2009 were replaced by private purchases, but people who own their vehicles tend to keep them longer than if they are leased.
As a result, the supply of off-lease and off-fleet used vehicles – particularly in popular segments such as compact passenger car and intermediate sport utility – has diminished considerably.
Some of the lack of supply has been made up by high levels of imports of used vehicles from the U.S., but there demand still outstrips supply.
"Wholesalers and resellers are facing a relative supply desert, and the prices charged reflect this shortage," says DesRosiers. It's a seller's market!