LIHU‘E — Restricted supplies, shrinking inventories and increased demand are driving inflation in used vehicle values. Nationally, wholesale used vehicle prices rose about 2 percent in April and approximately 5 percent during the last year, according to Mannheim Consulting, which
LIHU‘E — Restricted supplies, shrinking inventories and increased demand are driving inflation in used vehicle values.
Nationally, wholesale used vehicle prices rose about 2 percent in April and approximately 5 percent during the last year, according to Mannheim Consulting, which gauges what dealers pay at auction. The increase has pushed the Manheim Used Vehicle Value Index to a record high of 126.6.
On Kaua‘i, used automobile prices have climbed 10 to 15 percent during the last year, estimates Ohana Motors General Sales Manager Scott Herbon.
“It’s simply a supply and demand issue that started with the Cash for Clunkers program,” Herbon said on Thursday. “Cash for Clunkers created a shortage of used cars valued less than $4,000. There was a void, a lack of inventory after that; but that was just the tip of it.”
The earthquake that rocked Japan on March 11 caused interruptions in the production of parts needed to manufacture new vehicles in the U.S. and abroad. He said new car dealers are filling lots with used cars to make up the difference.
In addition, the fuel surcharge for shipping new and used vehicles has also increased and is reflected in higher sticker prices. Matson has increased its fuel surcharge four times this year in response to higher fuel prices. It recently announced it will raise the surcharge again to a record 47.5 percent starting in June.
Herbon said most of Ohana’s shipping is through Young Brothers inter-island service from O‘ahu, where dealers flock to bid on inventory auctions. But supply levels at auctions are decreasing.
The auctions used to offer about 3,000 cars, he said, but now it is down to just 1,100 to 1,200 with the same number of dealers buying.
It is all of these things together driving up prices, Herbon said, but primarily it is because dealers cannot get enough cars, an issue he readily attributes to the Car Allowance Rebate System (aka. Cash for Clunkers).
CARS was a $3 billion, government stimulus program between July and August 2009 that offered up to a $4,500 federal rebate for a trade-in when buying a new car. One of the intents of CARS was to help stimulate new car sales during the Great Recession.
Years later, dealers and consumers are experiencing the unintended consequences of the government’s market manipulation of demand being forced and pushed forward.
Bill Adams, spokesman for the Department of Transportation, said the program sold about 250,000 new cars in the first four days alone and 690,114 in all. It was a boon for new car dealers, but used car dealers struggled, and continue to struggle, with tighter inventories. New car dealers meanwhile experienced a protracted post-CARS sales slump.
Ryan Mackey, owner and general manager of Midpac Auto Center, a new and used car dealership in Lihu‘e, said the earthquake and tsunami in Japan has primarily impacted supplies of Japanese vehicles. No new Mazdas arrived at his lot in April, though new automobiles are usually shipped by manufacturers every 90 days.
Toyota recently announced it may not be delivering the new Prius model until next year and pre-disaster production levels will not be met until late this year, The Associated Press reported.
Mackey said new black cars are not available because the pigment needed for the black paint is produced is Japan and production has stopped since the country’s devastating disaster.
The most dramatic change Mackey has noticed is the lack of trade-ins, which he says is adding to the short supply of used-car inventories and rising prices of used cars. As a result, trade-in values have never been higher, he said.
“The public perception right now is used cars are cheaper, but the price gap is getting narrower and narrower,” especially with the 2008 through 2010 models, he said. “We’re selling about one and half to two used cars to every new one. It’s weird. Typically, used cars depreciate on your lot. Nowadays, some are actually appreciating.”
Since 2008, sales have been flat at Midpac and elsewhere, dealers say. Prior to the recession, the dealership would sell up to 200 cars per month. Lately, 70 to 80 is the norm. Rising gas prices have had a negative impact on sales, Mackey said, because consumers are less willing to spend.
Ohana Motors has been in business for 14 years. At the peak of the economy, Herbon said they were selling 80 to 100 cars per month. It is now down to about 60 per month on average.
He also said he finds it interesting that Blue Book values for used vehicles are higher now than they were a year or two ago. The timing is great for people who are selling their used car, he said.
For used-car buyers, “lenders are lending and the rates are good,” he said. “A recent promotion at Kaua‘i Community Federal Credit Union offered 2.99 percent financing for used vehicles. So interest rates are low.”
Local credit unions are offering used auto financing starting at approximately 5 percent.
Herbon predicts a return to normal supply and sales level will be slow.
• Vanessa Van Voorhis, staff writer, can be reached at 245-3681 (ext. 251) or by emailing vvanvoorhis@thegardenisland.com.
