Used-car sales rebound, but carmakers don't

To hear auto industry executives tell it, a bump in used-car sales is a good sign. When General Motors turned its fix-it plan in to the Treasury Department last month, executives said that stability in used-car prices indicates that there is some underlying demand for cars. Both BMW and Audi have crowed that sales of their certified used cars are growing nicely. BMW says it’s on pace to beat last year’s record 104,000 certified used cars. But is it really a good sign?

I beg to differ. What this tells me is that people who once had cash for a brand-new Bimmer or Audi are strapped. Banks are getting tougher with lease terms so the only way brand-conscious buyers can get an affordable payment is through the used lot. On the company’s earnings call, Audi of America Executive Vice President Johan de Nysschen said that the percentage of sales that go through lease has fallen from as high as 58% to 43%. Since leasing was one of the air pumps that inflated the auto bubble of the past decade, a drop in lasing indicates that demand for new cars won’t be returning to those rosy 16 million or 17 million markets anytime soon. For sellers of mass-market cars, it’s also worrisome. Some of the pent-up demand they are waiting on is being satisfied on the used lot.

Sure it’s good for brands like Audi and BMW to keep their loyal buyers in the family with a used-car. If I’m de Nysschen, I’d rather see someone coming out of a lease buy a used Audi that drive off in, say, a Toyota. But nobody’s plants build used cars. The dealers make a tidy profit but the companies continue to struggle.

A rebound in used-car sales does mitigate some of the damage. When people buy used cars, it pushes up the resale value. That makes it easier for car companies to offer cheap lease payments since lessees pay for the value of the car above the residual. Eventually, as used-car prices get closer to new car stickers buyers will look at new cars again. But don’t be fooled. This is no sign that car sales are bouncing back.

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