Used Car Prices Take Big Jump

By Brendan Moore

11.20.2009

US Dept Labor logoThe United States Labor Department is reporting that used car prices rose 3.4% in October, the sharpest monthly increase in 29 years.

Since consumer prices as a whole have dropped during the current recession, the increase in used car prices is even more dramatic when contrasted with prices for everything else – prices for used cars continue to rise sharply while other goods go down in price.

The dynamic at work here is very straightforward; there simply are not enough used vehicles to go around.

New car sales were down in the first half of 2009, resulting in less trade-ins. The recent surge in new-car sales didn’t replenish the inventory of used cars as it usually does, since a high percentage of the trade-ins were crushed under the Cash For Clunkers program that ran in the summer months. New car sales are increasing now, but slowly, and now that used car prices are up, many consumers that would have traded in their vehicle previously are now selling their used car themselves on the open market in order to take advantage of those higher selling prices.

Add in the fact that the car rental companies are turning over their fleets at a slower rate these days because the auto manufacturers are selling fewer of their new cars to them – that means fewer late-model used cars for the dealers to buy at auction.

Indeed, prices are up at every large wholesale used car auction company that the dealers use, and still climbing. The practical effect of this diminished supply of used vehicles is that there are fewer cars to pick from on used-car lots across the U.S., and, that the actual selling prices of those used vehicles are less flexible than in the past.

Will it get better?

Probably not until the second quarter of next year, and that’s only if new car sales continue their steady rise. That should fill up the used car inventory pipeline again.

COPYRIGHT Autosavant – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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10 Comments

  1. I haven’t noticed high prices here in St. Cloud since I’ve been looking for a car the last three months. And the dealers here seem to have a lot of used cars on their lots.

    The dealers are hanging tough on the price they have though. It’s basically take it or leave it on the price.

  2. Another consequence of the brilliant cash for clunkers.

  3. I’m not sure ‘cash for clunkers’ can be blamed with a decrease in desirable used cars. I understand a very high percentage of the ‘clunkers’ were exactly that — old ‘2nd or 3rd’cars chugging their last puff of smoke, or grandma’s old ride that had been sitting under a tree in the backyard for 15 years. 🙂

  4. Bil Dorian – I think that’s the author’s point. Cash for Clunkers produced new car sales, but the trade-ins usually seen from new car sales didn’t occur because the cars were crushed.

  5. I’m looking for a used Saturn Astra, and there don’t seem to be any within a 200 mile radius.

    Has anyone ever seen one for sale? Anywhere? I’m sure one is for sale somewhere, but they seem to be rare. I love the car and was hoping to pick one up for a price much cheaper then the new one was. But maybe I’m dreaming about getting one cheap since there don’t seem to be any around.

  6. Some good cars were crushed under that program. Not all the trade ins were hopeless pieces of junk.

  7. “I’m looking for a used Saturn Astra, and there don’t seem to be any within a 200 mile radius.”

    That’s pretty typical for cars with low sales volumes, and the Astra was a VERY low volume seller (I think GM pretty much gave up on the car as soon as it was launched, as importing from Europe was not cost effective, and gas prices had receded about the same time). Also, the Astra only went on sale in the US in early 2008 — it takes 2-4 years for people to start trading in their car.

    Frankly, I wouldn’t recommend buying one unless you got a screaming deal. Parts will probably be expensive and hard to come by since it’s a European import and Saturn is going out business.

  8. The used car market here in Dallas for small cars really sucks. The dealers won’t deal on the prices much at all and there’s not a lot to choose from.

  9. Bwahahaha! Finally! My strategy of purchasing old, decrepit vehicles is now paying off! Watch out, Mr. Buffett, there’s a new kid in town. Today, Lansing. Tomorrow–the World!

  10. So I’m not imagining things, prices have gone up since I started looking for another car again after stopping my search six months ago. But it seems like prices are up more than 3.4 percent.

    Seems like prices are up around 15 percent.

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