Market Conditions April ‘03

There has been an upturn in the market in recent days. Whether it is due to the improved weather or some other factors, we don’t know. We know it is a relief to dealers and hope it continues to build, but we do have some reservations and concerns.

One of the things we’ve noticed in particular about this market is how important color has become. In discussing our observations at auctions or when reviewing auction results, we are in agreement that the vehicles that standout and bring exceptional money are almost always pearl white or, to a lesser degree, black or silver. And they are not bringing a little more, they are bringing a lot more: like 5% to 10% more, sometimes amounting to thousands of dollars.

Why has the affect of color been so pronounced in the current market? We think it just emphasizes what we have been saying about this market for a long time, that unless a vehicle is exceptional in some way – by virtue of scarcity, equipment, mileage, or appearance (color) or some combination of those factors – it will fall into the category of ordinary and have nothing to attract a buyer except a low price. The exceptional vehicle, on the other hand, will have a number of strong players chasing it and bring an exceptional price.

To some degree this has always been true, but in the current market several conditions have converged to create an unusually large imbalance between the ordinary and the exceptional vehicle. As always, the primary determinant of used vehicle pricing is the law of supply and demand. The current market is characterized by a low demand for used product. Significant rebates and incentives on new vehicles have put a lot of potential used car buyers into new product over the past year, perhaps influencing them to purchase earlier than they might have had there not been such aggressive incentives to push them and thereby taking them out of the traditionally strong Spring used car market. Those aggressive rebates continue to be offered by manufacturers in an effort to fuel sales in a saturated new vehicle market, taking many of those potential used vehicle buyers who have managed to resist the temptation to buy previously and forcing them to consider new instead of used. Add to that a questionable economy with large numbers of unemployed and a war that is absorbing much of our citizens’ focus and you have the ingredients for an exceptionally low demand for used vehicles in what is traditionally a boom market.

So, although we would love to jump on the bandwagon and talk about a huge turn in the market, we continue to be cautious and urge restraint with all but those vehicles that fall into the exceptional category. That even includes most sport coupes and convertibles that are usually so hot this time of year. On a positive note, there is definitely increased activity among wholesalers and a higher percentage of sold units at the auctions, and although we would not characterize the market as strong, we can at least say that it is more stable and predictable.