- The Washington Times - Friday, March 20, 2009

Higher prices and falling inventories for used vehicles in the United States may be pointing buyers to new car lots after sales fell to a 27-year low last month, dealers say.

”Car prices at auction have skyrocketed,” said Gordon Stewart, who sells new and used cars at dealerships affiliated with Toyota Motor Corp. and General Motors Corp. in Michigan, Florida, Georgia and Alabama. “Trying to find a two-year-old Suburban or Tahoe is like trying to find a needle in a haystack” as demand surges.

The average price of a Chevrolet Suburban large sport utility vehicle advertised on JustGoodCars.com fell to $25,000 in November from $38,700 a year earlier. It rose to $29,400 for the first 15 days of March.

New-car buyers still able to get credit or who are paying cash often see big discounts. New cars sold for less than the price the dealer paid have increased 20 percent in the past six months, according to TrueCar.com, an automotive sales data marketing company. It gathers transaction data from about 25 percent of new-vehicle sales in the U.S.

“There is a very, very interesting inflection point where the financing on a new car becomes more attractive than the financing on a used car,” said Scott Painter, owner and founder of TrueCar.com.

”You can look for positive signs, and you can see the fact that used-car prices have not only firmed but actually risen,” Ford Motor Co. Chairman Bill Ford said last week. “The inventory of used cars is dwindling.”

Manheim Consulting, an auction pricing service, and Federal Reserve banks in three cities found that used-car sales are climbing this year, drawing down inventory. A survey by Wachovia Securities analyst Rich Kwas showed that 42 percent of dealers report “too little” used-car inventory.

Higher used-car prices can make new models a better relative value. GM and Chrysler LLC, operating with $17.4 billion in U.S. loans, are counting on new-car sales to rise from February’s 9.1 million annual rate, the lowest since December 1981. Their recovery plans submitted to the U.S. Treasury on Feb. 17 assume full-year sales of more than 10 million.

The timing of any increase in new-car sales is difficult to forecast because consumer credit remains tight and job losses are damping consumer confidence, said Patrick Archambault, a Goldman Sachs Group Inc. analyst in New York.

“There is demand of some kind on the horizon,” said Mr. Archambault, who isn’t predicting a rebound. “It’s nice to see some sign that’s not red.”

Higher used-car demand is a positive sign for sales of new models, Chrysler President Jim Press said in a March 3 call with analysts and reporters. Even so, auto executives won’t declare that the positive signs mean new-car demand may soon rebound.

”We are not jumping to conclusions,” George Pipas, Ford’s sales analyst, said on March 3. “This doesn’t form the linchpin of a recovery hypothesis.”

Used-car prices often rise and fall in tandem with sales of new models, Himanshu Patel, an analyst for JPMorgan Chase & Co., said in a March 9 report to investors. Those markets diverged in January and February as auction prices climbed and new-model sales fell further. The difference bodes well for new sales, Mr. Patel said.

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