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Gulf Coast Car Demand Will Increase Used-Car Prices

September 15, 2005

The need to replace private cars and trucks as well as demand for work and fleet vehicles is expected to boost used-vehicle sales to a new national record of 44.1 million cars and trucks this year, the Dallas Morning News reports.Nearly 10 percent of all registered vehicles in Louisiana and Mississippi—as many as 466,000 total—that were destroyed in the hurricane will need to be replaced.Used-car prices could start to go up by the end of this month and stay high through November, industry officials say. The glut of trade-ins because of new-car employee discounts should be mitigated by new and unexpected demand.Texas auctions will probably feel some of the greater demand from the Gulf Coast. Texas dealers report higher auction prices already, the Morning News reports. In the weeks ahead, higher wholesale car and truck prices are "a reasonable assumption when people start getting insurance checks," said Paul Taylor, chief economist at the National Automobile Dealers Association.Jack Durham, executive director of the Texas Independent Automobile Dealers Association, is more blunt. "I think we're going to see a complete upheaval in the marketplace for the next six months to a year," he said in the report. But dealers may be limited when figuring how much of the higher costs they can pass on to consumers. Used-vehicle prices are determined largely by new-vehicle prices. With new-car prices relatively low because of incentives and special deals, retail used-vehicle prices are down 3 percent to 4 percent, said Art Spinella, president of CNW Marketing Research in Bandon, Ore. As a result, dealers' margins may get squeezed more than consumers' wallets. In August 2004, the average price of a used car sold at a new-car dealership was $12,200, compared with $11,300 last month, Mr. Spinella said in the article. Still, many in the industry say they don't really know what to expect. "I can't think of any other situation where you had this many vehicles displaced," said Durham. "You didn't have this volume after 9-11. This is a unique situation for the auto industry."
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