Used Car Prices Take Big Jump
By Brendan Moore
The 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.
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