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Why January Is a Great Time to Buy a Used Car

BOSTON (TheStreet) -- U.S. auto dealers just recorded their best December new-car sales in six years -- making January a great time to buy used vehicles as firms scramble to unload all of the trade-ins they just took in.

"If you traded in a vehicle in December, it's more likely than not still available [for resale] in January," says Richard Arca of car-buying site Edmunds.com.

Arca says a confluence of factors should favor used-car buyers in this period:

  • Dealers sold 1.36 million new cars and light trucks in December as an improving economy and end-of-year "sale-a-thon" promotions boosted demand. That's the best December showing since 2007, before consumers felt the Great Recession.
  • Strong December sales mean dealers have plenty of used vehicles on their lots, given that about half of new-car purchases involve trade-ins and used cars take around 45 days on average to resell.
  • Plenty of consumers took out three-year leases during the downturn instead of buying, so cars leased in late 2010 and early 2011 are just returning to dealerships now for resale.
  • Used cars typically lose a good chunk of their value when the clock strikes midnight New Year's Eve and models suddenly become one year older in many buyers' minds. For instance, Edmunds says the typical 2009 model sold for $19,392 in December 2012 but $18,738 in January 2013 -- a 3.4% drop in just one month.
  • An improving economy means more and more consumers want new vehicles instead of used ones, reducing used-car demand.
  • That's all good news for used-vehicle buyers, who've faced higher prices and a smaller-than-normal inventory of vehicles to choose from in recent years.

The tough economy meant fewer Americans could afford new cars, boosting demand for used vehicles even as the supply of trade-ins available for resale dropped.

Arca says used-car shoppers still face something of a sellers' market, but that supply and demand moved in buyers' direction during 2013 and should continue to do so this year.

"There's still a slight used-car shortage, but we're nowhere near where we were in 2012 -- and 2014 will be even better for used-car shoppers than 2013 was," he says.

That said, the expert recommends would-be buyers act fast; used-car prices typically start rising around mid-February. Arca says demand historically rises as the weather improves and consumers get income-tax refunds that many use for vehicle purchases.

He also advises shoppers to at least check out some new-car deals before settling on used models, as many automakers have great financing offers right now. "Every manufacturer has at least one deal on a compact or midsized vehicle for $199 or $249 a month, and that's very affordable," Arca says.

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