On a recent morning at Manheim Riverside, a wholesale auto auction in Riverside, Calif., more than a thousand used-car dealers gathered. Over a collective din that drowned out the auctioneers, the dealers winked, nodded or, for the less stealthy, raised a hand to indicate their bid.
The wholesale auction is just one of the hundreds across the country that set the pace — and the price — for most Americans who buy used cars.
Often viewed as an afterthought, the used-car market is far larger than the one for new vehicles. It has more than double the sales, and automakers pay close attention to the ebb and flow of its prices. And those prices are about to decline from some unusually high levels, analysts say.
Edmunds.com's choices for the best used cars for 2013, based on reliability, safety, value and availability (model years 2006-'11 unless otherwise noted):
Subcompact: Honda Fit (2007-'11)
Compact sedan: Hyundai Elantra
Midsize sedan: Ford Fusion (2007-'11)
Large sedan: Toyota Avalon
Coupe: Honda Accord
Convertible: Volvo C70
Wagon: Subaru Outback
Compact SUV/crossover: Honda CR-V
Midsize SUV/crossover: Toyota Highlander
Large SUV/crossover: Mazda CX-9 (2007-'11)
Minivan/van: Honda Odyssey
Cargo van: Dodge/Mercedes-Benz Sprinter
Compact truck: Toyota Tacoma
Large truck: Ford F-150
Luxury: Infiniti G35/G37/G25
Hybrid: Toyota Prius
Two-seat sports car: Chevrolet Corvette
Performance car: Ford Mustang GT
— NWautos staff
During the recession, consumers stopped buying new vehicles and automakers trimmed production, eventually creating a shortage of the most sought-after used vehicles — later models with low mileage. Used-car prices surged.
But prices are beginning to moderate from those heady days when dealers scrambled just to find used cars to sell. Then, the monthly payments on a used car could equal the payments on a similar new car because of interest rates and financing terms, and because of robust demand from consumers.
"It's slowly coming back to a point where it doesn't feel like there's a shortage anymore," says Jeff Laethem, owner of Ray Laethem Motor Village in Detroit and Grosse Pointe, Mich.
Cliff Wood, executive vice president of stores at CarMax, a nationwide used-car chain, says that 85 percent of its inventory was traditionally in the 0- to 4-year-old category — the "sweet spot," he calls it. "That fell to 70 percent in 2010, when fewer later-model cars became available," he says.
Now, supply is coming closer to meeting demand, analysts say.
"It's always hard to find a good, clean used car, and it will always be that way," says David W. Westcott, chairman of the National Automobile Dealers Association (NADA). "But is it better now than it was three or four years ago? Absolutely."
The price of used cars between 1 and 3 years old is expected to fall 1.5 percent in 2013 compared with the previous year, according to NADA. That's because demand for new vehicles coupled with higher incentives from manufacturers and dealers will probably soften interest in later-model used vehicles.
"You don't have to pay quite as much as you did a few years ago, because there is more availability," Westcott says. "It will be a small fluctuation, sure, but it's not going to drop 10 or 20 percent."
Joe Spina, a senior analyst at industry researcher Edmunds.com, says, "It's definitely a better time to buy than last year, but if you can wait, prices are just going to keep going down."
Late-model compact and midsize cars and small SUVs — the type of vehicle currently coming off lease — are most in demand.
"It's that $12,000 car that's the perfect sweet spot," Laethem says, "the kind with a $250-a-month payment."