Sales for used cars reached new heights as the average price of such cars hit a record high $16,800 in 2014, according to a report by car buying information service Edmunds.com.
The record average price represents a 5.7 percent increase from the average in the previous year, which was at $15,900.
Higher prices for used cars signifies that the resale value of vehicles that are only as old as three years to four years, coming off from leases, is improving. This might also mean that customers that purchase new cars are receiving reasonable offers to trade in their used cars instead.
However, probably the most important factor that has led to the increase in prices is the growth of what is called the "certified pre-owned" market, which are made up mostly of off-lease cars that are reconditioned by dealers and then offered as an alternative to customers looking for bargain prices for vehicles.
Dealers in the United States sold a record-high 2.3 million CPO cars in 2014, which is 21 percent of the used car market in the country. The figure represents a significant increase from the 1.53 million CPO cars sold in 2009.
"We fully expect CPO popularity to continue throughout 2015 because many leased cars are being returned in excellent shape and lightly used cars are being traded in at faster rates than in previous years," said Edmunds analyst Jessica Caldwell.
The Edmunds report analyzed the increase in average prices of used cars by the age of the vehicles. Used cars that are 1 year old saw a 5.7 percent increase in price, 2-year-old used cars saw a 1.5 percent increase, 3-year-old used cars saw a 1.1 percent decrease and 4-year-old used cars saw a 5.5 percent increase.
A surprising figure in the detailed analysis are the average prices of used cars that are 8 to 9 years old, as their average prices increased by 8.8 percent and 8.5 percent, respectively. For used cars that are 11 years old to 16 years old, the increase in average price ranged from 9.9 percent to 18.4 percent.
Caldwell wrote that there was a significant increase in the average price of such older used cars because customers were less concerned with fuel economy. Newer vehicles led to more miles per gallon, but with falling gasoline prices, buyers went for utility over fuel economy.
Experian automotive credit director Melinda Zabritski said that a factor that could be contributing to higher prices for older used cars is the increase in subprime auto lending, as subprime borrowers usually buy older cars.
