Over the past year there has been a noticeable trend throughout the auto auction community. The value and availability of late-model cars has significantly increased. At the same time, the demand for older cars has diminished. This creates the perfect opportunity for savvy auto auction goers to land a reliable vehicle at well below market rates. It is important to keep in mind that even though the values of late-model cars on the secondary market have increased, auto auctions are still significantly less expensive than purchasing a used car from a dealership.
Auto Auction Companies Reported Nearly a 10% Rise in the Volume of Late Model Cars
A recent report notes that auto auction companies have seen a rise of nearly 10 percent in the volume of late-model cars in their recent listings. In this report late-model cars were defined as anything four years old or newer. In total, the number of vehicles 1 to 2 years old climbed by five percent. The amount of vehicles 3 to 4 years old climbed by 13 percent.
Low Rate of Depreciation and Price Strength Key Factors
There are two driving factors behind the rise in the demand for late-model cars. The first is the low rate of depreciation. The average car sees a majority of its depreciation within the first 12 to 24 months of its lifespan. By purchasing a car one or two years old at an auto auction, car buyers can avoid a majority of the initial depreciation without sacrificing value or reliability. Additionally, the current price strength of late-model vehicles makes them a solid investment. Cars are built to last much longer than they used to. As a result, their long-term depreciation rate is significantly slower than it was a decade ago. This price strength is a driving force behind the desirability of late-model vehicles.
Auto Auction Companies Reported a Significant Decrease in Demand for Older Cars
While the demand for late-model vehicles has increased, the demand for older cars has decreased. Cars between five and eight years old have seen a dip in demand of nearly 16 percent. Vehicles 5 to 6 years old have seen a decrease in demand by nearly 30 percent, while vehicle 7to 8 years old have only seen a decrease of one percent. It shouldn’t be surprising that vehicles 5to 6 years old seen a significant decrease in demand because the people who recently purchased these types of vehicles are now looking at cars 3 to 4 years old. This provides a unique opportunity for used car buyers who want to spend as little as possible for a reliable vehicle to purchase a slightly older used car at a steep discount. Another reason this is good news is because the prices of older used cars have historically been higher at used-car lots over the past decade because of supply shortages. Now that these shortages are being remedied, the average price of older used cars is continually declining.
Commercial Volume Continues to Increase which is Great News for Off-Lease Availability
A key reason the number of late-model vehicles are finding their way to auto auctions is because many are off lease vehicles. In 2010 the auto industry saw a surge in vehicle leases being made by commercial entities. A majority of these entities utilize leases because they don’t want to purchase the cars out right. Once the lease is up, they sign a new lease for another vehicle rather than buying out the current lease contract. As a result, the off lease vehicles are now flooding the market.
The auto auction industry has always been strong; however the surge in availability and demand of late-model vehicles makes this an ideal time to save money. Since the availability of late-model vehicles is increasing with the demand, there has been no noticeable increase in the average price of a late-model car at auction. At the same time, the decrease in demand for older vehicles has led to a significant price drop for cars five years or older at local auto auctions.