Too many unpopular used cars could have serious consequences.
Used cars are right now a problem for US automakers, according to a recent Reuters report. Because gas prices are low once again, Americans have fallen back into their hold love habit of SUVs and trucks. Only a few years ago when gas prices were high, smaller cars became popular. Today, however, those who leased small vehicles are trading them in for, not surprisingly, SUVs and trucks. Those trade-ins, and there's a lot of them, are now heading to used car dealerships and auction lots, and here's the problem with that:
This supply surge "threatens to depress prices for new and used vehicles, raising the risk of losses for automakers and finance companies on lease deals. It also undercuts the value of cars customers want to trade in for a new vehicle." In order to counteract this, automakers like GM and Ford are working with auction houses to make sure they receive good prices for those cars. One example Reuters pointed out was a 2015 Chevrolet Malibu with less than 20,000 miles on it selling for just above $13,000. That's less than half of its original price. Just to compare, a used 2013 Chevrolet Silverado with 200,000 miles went for $11,500.
To help raise use car (not truck) prices, automakers have begun sending used cars to specific locations where there's greater demand based on real-time pricing. Auction houses are doing their part by ranking used cars one a one to five scale, the latter being the highest. When a car receives a rating, dealers will then have a very good idea what to pay for it. Basically, automakers and auction houses are working together to raise these scores and, subsequently, prices. The national average price of a specific make and model used car, depending on model year and mileage, changes weekly, and the same car will often sell for different prices depending on which part of the country it's located.
This auction house-automaker partnership of sorts is serving as balancing act for both location and pricing. Propping up used car values makes sense, but it's probably not enough to slow down the used car inventory. As a result, automakers will likely have to cut down on new car production.