Used-car boom: Car buyers take refuge in affordable sedans

Posted by Talbot Payne on December 30, 2020

With a dearth of new cars priced under $20,000, average new-car transaction prices pushing $40,000 and vehicles lasting longer than ever, the used-car market is primed for growth as cost-conscious buyers shop for their next vehicles.

Mix in the COVID epidemic — with financial insecurity and a reluctance to use public transportation — and the used market exploded. And some of the hottest commodities out there? Used Japanese sedans.

Jennifer Nickerson of Westland bought a used 2017 Honda Accord for her family this fall. Demand for used vehicles, particularly Japanese sedans, skyrocketed this year.

The second half of 2020 saw the hottest pre-owned vehicle market in years. In June alone, used-vehicle sales were up 22% — the most since 2007, according to Edmunds.com. Edmunds sees that trend continuing in 2021 with a forecast of used-vehicle sales up 7% to 41 million sold.

After the Ford F-150 and Chevy Silverado pickups (consistently the top two best-selling used vehicles), the next best-sellers were the Honda Accord, Honda Civic, Toyota Camry, Nissan Altima and Toyota Corolla.

Sedans might be taking a backseat to trucks and SUVs in the new-vehicle market, but on the pre-owned lot, their affordability and fuel efficiency remain irresistible. Combined with healthy, extended warranties and more durable chassis and drivetrains, sedans are winning over customers and earning brand loyalty for new buyers.

Jennifer Nickerson, 39, of Westland bought a used 2017 Honda Accord for her family this fall. She traded in her husband’s used Ram 1500 pickup at LaFontaine Honda in Dearborn.

“Gas prices brought him to the Accord,” said Nickerson, who bought the sleek made-in-Ohio sedan for $15,000 with about 30,000 miles on the odometer. “The pickup was a monster to refill.”

Dealers say fuel economy is a common reason for going with used sedans. The Accord, for example, gets 30 mpg compared to the thirsty Ram V-8’s 17.

But there are other factors that influence buyers that uniquely benefit sedans. They are generally $1,000-$1,500 cheaper than comparable SUVs, meaning Nickerson’s $15,000 Accord was not only a whopping $10,000 cheaper than a new 2020 model, but it was cheaper than a comparable Honda CR-V SUV. With a 16-year-old son starting to drive, affordability was key.

Jennifer Nickerson of Westland with her 2017 Honda Accord on Wednesday, December 23, 2020 as she purchased the used vehicle at LaFontaine Honda.

That affordability came with an extended, bumper-to-bumper warranty of eight years/120,000 miles — better than a new Accord at three years/36,000 miles.

Lafontaine Automotive Group Used Car Director Eric Benson said Dickerson’s experience is not unusual. Combine low interest rates, increased new-car lease rates and extended warranties, and he says used vehicles “can cost two-thirds of the price of a new car.”

In addition to veteran customers like Nickerson, Benson says used cars have become key to luring first-time buyers.

So successful has Honda been at attracting first-time customers through its pre-owned business that it now offers a sales portal for used cars through its own manufacturer website. It’s the first mass-market brand to do so.

“Rising new-vehicle transaction prices make used and certified pre-owned vehicles an increasingly important entry point to vehicle ownership for both young and first-time buyers,” Honda said in launching the service this month.

Detroit brands also see used cars as key to bringing in new buyers as Ford, Chevrolet and Chrysler all exit the small-car market.

“Selling new cars under $20,000 is a money-loser for Detroit manufacturers,” said LaFontaine’s Benson. “They can’t make them at a profit. So they are increasingly emphasizing the certified, pre-owned market to keep getting new customers into their brands.”

Benson’s colleague, Gordy Koenig, said LaFontaine Group’s used-car sales are up 10% this year over last, with continued growth ahead. He is predicting a 15% increase in 2021.

Bumper.com’s Alessandro Mannino sees the same trend nationally. Bumper examined over 134,000 vehicle searches across all 50 states from April 1-Sept. 15 to monitor buying trends.

“A lot of this has been driven by people in places like New York City where they are moving out of the city and need a car,” he said. Plant shutdowns caused by the pandemic in spring tightened new-car inventories and wallets. An aversion to public transit and ride-sharing drove more buyers into the car market.

For example, the No. 1 used (and new) Honda/Acura dealer in the nation this summer was Paragon Honda in Queens, as New York residents swarmed the dealership looking for fuel-efficient, metro-friendly sedans.

“No one is going into New York. It is a ghost town,” said Paragon general manager Brian Benstock, noting subway ridership has plummeted from 5 million a day to 1.2 million. “People are working from home, they are unemployed, they aren’t comfortable riding on a subway, bus or rideshare. Twenty-five percent of that market is shifting to personal, used vehicles.”

Jennifer Nickerson of Westland looks at the passenger sun visor vanity mirror in her 2017 Honda Accord on Wednesday, December 23, 2020 as she purchased the used vehicle at LaFontaine Honda.

Bumper.com’s data indicates the affordable sedan trend could be here to stay as buyers find good cars without new car prices.

“The average age of vehicles searched is 12 years old,” said Mannino. “That shows users are willing to buy older vehicles they see as reliable vehicles. Overall, pickup trucks are the most popular vehicle for used-car buyers. But after that, sedans were the most-searched vehicles in 11 states, while SUVs were the most-searched in only three.”

Only the Jeep Grand Cherokee and Ford Explorer (No. 9 and No.10 respectively) SUVs broke the Top 10. The average oldest vehicles searched are the Honda Accord and Ford Mustang (15 years each).

The Ford F-150 (Ford was the most-searched vehicle in 31 states) and Chevy Silverado pickups were the most popular used-car searches, dominating across the southern, middle and western states. But midsize and compact sedans — led by Honda — were No.1 in states as varied as California, Connecticut, Georgia and Virginia.

With regulatory costs and the addition of new electronics driving up new-vehicle costs, both U.S. and foreign brands have seen average new-car transition prices soar. Kelley Blue Book reports the average new-car transaction price at $39,259 for November.

LaFontaine’s Koenig says the used market is increasingly important as a refuge for cost-conscious buyers: “Seventy to 80% of our sales are for vehicles less than $20,000.”

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