Used car prices hit four-year lows

As new-car buyers flood showrooms, used car prices are hitting a four-year low, according to an analysis released Wednesday.

Prices may go even lower next year as more new-car buyers trade in their jalopies and more used cars with expiring leases show up on lots.

The average used car sold for $15,617 at a franchised dealership in the third quarter, the lowest since the same quarter in 2009, when they averaged $14,808, according to the analysis by car-pricing website Edmunds.com. Prices have been easing for most of the year, and the third-quarter average was down 2.8% from the second quarter and 0.9% from the same quarter last year.

Another used-car price watcher, Tom Kontos of Adesa Analytical Services, noted a tiny uptick in wholesale prices in October, but says the overall trend is down.

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Why prices are dropping:

• New-car sales. Auto dealers' new-car sales are on track to exceed 15 million. While not quite up to the boom years of a decade ago, the bonanza has meant a flood of trade-ins. To move them out, dealers have cut prices. "New cars automatically bring some used cars out of the woodwork," says Kontos.

• Off-lease cars. By 2010, cheap lease deals abounded, and dealers were eager to get those new cars into the hands of recession-weary drivers who were hesitant or just couldn't make the purchase price payments. Those leased cars are coming back to be sold as used cars.

"There was a big rise in leases," says Richard Arca, senior pricing manager for Edmunds.com. Now, "we're seeing the result."

• Better economy. Even drivers who held out during the recession, keeping their old cars running, now are ready to throw in the towel and buy a newer, used car. Lower unemployment rates and an overall better economy make it easier to buy a used car, plus auto loan rates are still low, and lenders are lending.

Arca cautions, how! ever, that used-car prices still aren't as low as they dipped a decade ago. Prices of some late-model used cars still are so close to the price of a new car that it might make more sense to buy new, he says.

Kontos notes, too, that there hasn't been "a dramatic decline in used-car prices or a flood of used cars on the market" because of the gradual nature of the recovery.

Look for more declines he says.

"The used-car market, in terms of pricing, is poised for further softening," Kontos says, He predicts even more cars will be pouring into the used-car market, making them all cheaper.