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Increase in Used Car Purchases Should Have Positive Effect on Overall Car Sales

By Liz Opsitnik
Monday, Mar 23 2009 12:38

Used car sales managers are quite busy lately. As consumers need cars, they are choosing to buy used cars rather than take out a big car loan or a costly lease on a new vehicle.

While you might think that dealership executives wouldn’t be happy about this new trend, it’s actually the opposite. Apparently, not only do used car sales help cover expenses for the dealership, it also has several positive effects on the new car market, the Detroit Free Press reports.
Historically, strong used vehicle sales eventually translate into improved new car sales. Higher used car prices mean better trade-in values for consumers. Increased used car prices also can make new models a better relative value, which consumers have seen recently, as some new cars are actually cheaper than some used models.
2006 Honda Accord coupe picture
Used cars are hot sellers right now as consumers are afraid of expensive car loans and leases on new cars.
This trend also helps the leasing industry. Leases are based on the residual value of the car in the future, or the car’s future value, so higher resale values for used cars is good for leasing. The higher the expected future value, the lower the lease rate.
Used car sales help dealerships cover their costs because they have a higher profit margin than new car sales. This is because consumers can easily go on the Internet to see what a dealer’s invoice cost of a vehicle is. They have no way of knowing how much a dealer paid for a used model at auction or from a trade-in.
So until the new car market returns to normal selling levels, dealers are relying on used car sales to keep the doors open. Hopefully for them, this new trend will help the new car sales market in the future.

Confused or unsure about some of the car loan terms used in the article? Click here for our Auto Loan Glossary.



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