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Used-car demand up after Sandy

Since Hurricane Sandy ravaged tens of thousands of vehicles on the East Coast, used-vehicle pricing and demand are headed in a familiar, post-disaster direction: higher and higher.

Experts expect used-vehicle prices to increase $1,000 or more as dealers in areas affected by the storm stock up on used cars and trucks to sell to customers who lost vehicles to Sandy’s water and wind.

Many of those replacement vehicles will have to be transported from other parts of the country, driving up the cost, they said.

Sandy is the latest in a series of events — including natural disasters — since the federal cash-for-clunkers program in 2009 that have spurred volatility in the used-vehicle market.

Last month, “prices were actually declining during the first half,” ADESA analyst Tom Kontos wrote in a research report. But used-vehicles prices “more than made up for lost ground during the second half of the month.”

ADESA Analytical Services said the average wholesale price of a used car sold at auction in October was $9,742, or 2 percent above September’s average. Dealers “may have been responding to auction closings and anticipating supply shortages” from the storm, Kontos wrote.

Speaking at an industry event here, Ricky Beggs, managing editor of Black Book, said conversations with dealers in Texas and remarketers in the Midwest early last week indicated that used-vehicle demand was rising and that wholesalers were meeting less price resistance from dealers.

Price increases of $600 to $1,000 will soon follow, he said. Used-vehicle prices are typically at their lowest at this time of year.

Black Book’s researchers visit auto auctions around the country to record transaction prices and monitor the market by talking to buyers and sellers.

“A couple of wholesalers say the market is coming to them and saying, ‘We need more cars,'” Beggs said after a panel discussion at the National Remarketing Conference here last week. “They’re seeing demand. The sales conversion [rate] has increased.” The sales conversion rate refers to the percentage of vehicles offered at auction that are sold.

“In time, you’ll see that price bump up a little more, depending on the car and how far that car’s got to go. We’re at the start of the increase,” Beggs said.

Jonathan Banks, an analyst with NADA Used Car Guide, said his company studied data from Hurricane Katrina, which submerged parts of New Orleans for several days in 2005, to develop forecasts for Sandy.

He said he expects used-vehicle prices on average to increase 0.5 to 1.5 percent as a result of Sandy. Used-vehicle prices rose about 3 percent about a month or two after Katrina hit, Banks said.

Although the areas pounded by Sandy had a greater population density than those hit by Katrina, Banks said the damage appears to be less extensive. He said price data that he received early this month, after Sandy struck, showed prices to be flat compared with October.

“We do think there’s going to be a ripple effect, that prices will be affected across the country,” Banks said. “Anything that disrupts that balance is going to have an impact on price. In this case, it’s going to be an increase in demand and a decrease in supply.”

One positive aspect of an otherwise bad situation is that vehicle owners will get more for their damaged vehicles when they make insurance claims, Banks said.

Richard Arca, an analyst with Edmunds.com, said his data indicate that dealers are preparing for inventory shortages. He predicted that “within about a month or so,” the price of an average 5-year-old vehicle in the $13,000 to $14,000 price range will increase about “$1,000 or even higher.”

He attributed the increase, in part, to vehicle transportation costs: “They’re going to have to go out of the state or out of the area to get those vehicles.”

via Automotive News



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