Originally created 11/28/02

New-car incentives lower prices on used vehicles



DETROIT - All those dealer incentives to buy a new car are affecting the used-car market.

Prices for late-model used vehicles are at their lowest levels in years, driven down in part by "zero-percent financing" and other incentives that have been a trademark of the industry for more than a year.

Those lucrative deals have prompted many people to trade in their current rides for new ones, boosting used-car inventories nationwide, observers say. And relatively flat new-vehicle prices in recent years have kept prices down on most used vehicles.

"The incentives have been good not only for consumers looking for new cars, but it's also been good for the typical used-car buyer," said Paul Taylor, the chief economist for the National Automobile Dealers Association. "What we find across the board is upgrading - somebody who might buy a 5-year-old used car is buying a 3-year-old car, and someone who might buy a 2-year-old car is buying something new."

Nationally, used vehicle prices have fallen 3.4 percent in the past year and 5.2 percent since the beginning of 2002, said Tom Webb, the chief economist for the Manheim Auctions Used Vehicle Value Index.

Dealers say used cars that sold for $12,000 a year ago are moving for $10,000 now.

Mr. Manheim says leased vehicles returned to dealers at the end of their contracts have added to the bulk of used cars on the market.

Mr. Webb said he expects used-vehicle prices to stabilize a bit this month, but values remain at levels not seen in years.

"During the '92 recession, prices were not this weak," he said.

While some dealers are experiencing gluts of vehicles, others are selling their used stock at record levels.

Mike Szettella, used-car manager at George Matick Chevrolet in Redford Township, outside Detroit, said October was his best month for used car sales in eight to 10 years.

Ricky Thomas, the general manager at Mack Grubbs Motors in Bogalusa, La., a General Motors and Ford dealer, said he's selling used models as quickly as he can get them. Mr. Thomas said most of his used inventory is from trade-ins on new vehicles.

"Most of your buyers in this part of the country worry about their monthly note, and right now we can put them in a little better car and keep them at a good note," he said.

Used vehicle prices are down across the board, Mr. Manheim says, but the biggest declines have occurred within the compact and mid-size car segments - the models often included in rental and other fleets.

U.S. automakers have been offering some type of incentive for many years, but the latest battle began in September 2001 with GM's "Keep America Rolling" no-interest financing promotion.

Ford and Chrysler followed, leading to a torrid sales pace at the end of last year. The incentives, however, have narrowed profit margins and soured many investors on automaker stocks this year.

The incentive-induced buying frenzy continued this summer but slowed in September and October. Predictions for November sales, to be released Tuesday, have ranged from gloomy to optimistic as varying economic reports have surfaced.