Prices Climb as Supply of Off-Lease Vehicles Dwindles
By AL STEWART
Staff Reporter
Shoppers kicking tires in used car lots around Los Angeles may be experiencing the equivalent of sticker shock these days.
A dwindling supply of late model cars available on the pre-owned market has led to steady price increases across the nation, and particularly in car-happy South California where prices are as much as 12 percent higher than a year ago.
“If it is a common ordinary piece of metal, it’s not an issue,” said Dick Martin, owner of Dick Martin Sales and Leasing in Pasadena. “For cars that are two or three years old, you have to pay a little more for those now.”
Those who track the used car business point out that today’s prices may seem high only in contrast to those of a year or two ago when the market was saturated with cars coming off leases. That supply is dwindling as the leasing business has slowed down.
“In the 20 years I’ve been doing this, it is the greatest decline in the number of used cars available I’ve ever seen,” said Charlie Vogeleim, executive editor of Kelley Blue Book, an Irvine-based organization that tracks new and used car prices. “Prices on used cars are being driven up for a number of reasons, but mainly it’s because there are just far fewer cars coming off lease.”
The effect is greater in Southern California, which had been seen as a ready market to absorb the excess inventory of off-lease cars from elsewhere in the country. Shipping those vehicles to the area exacerbated what was a glut of used cars in the market.
“They know that there is a big demand for cars in this area and that cars just seem to age more gracefully here then they would in the rust belt,” said Vogeleim. “You would see banks and lenders that were trying to sell used cars ship them to auctions here from all over the country. It was sort of a used car arbitrage.”
The price increases that come with the limited supply have been a welcome development for fleet owners and others trying to move a large number of cars.
“Yes, we are seeing a diminished supply of the two- and three-year-old cars available for sale,” said Steve Fox, vice president of remarketing for Enterprise Rent A Car Co. of Los Angeles, which also operates used car lots in the area. “The question is: is it really good now (for sellers) or is the market just recovering from what had been a bad time for us.”
Martin said the greatest price increases were found in the most desirable vehicles: low-mileage, late-model cars. In recent months, he said, prices have increased from 5 percent to 12 percent, depending on make and model.
Lenders started to back away from bankrolling leases around 2000. Many of the cars returned at the close of a lease were failing to generate the expected resale value, leaving lenders with a shortfall in residual revenue.
“Banks saw they were taking significant losses on cars that were coming off leases two or three years ago,” said George Largay, director of communications for Manheim Auctions, which operates 115 auction facilities, including the L.A. Dealer Auto Auction in Rosemead.
“They were losing $2,000 to $2,500 per car,” he added. “They made a decision that leases are not a good deal for them. So here we are two or three years later and all those cars that would have been coming off lease just aren’t available. That is going to affect prices.”
Largay noted that car shoppers in Los Angeles traditionally have shown a greater inclination toward leasing agreements that enable them to drive a more expensive car then they could afford as a buyer.
Perhaps mindful that reports of increased prices could scare away potential customers, Martin offered assurances that deals could still be had.
“There are certain cars where you are always going to find a deal, Hondas and (Toyota) Camry’s for example,” he said. “They make so doggone many of those there is always going to be plenty for sale.”
