Frugal Café Blog Zone

Posted By Vicki McClure Davidson on August 16, 2011

There's a big demand for used cars now, with prices rivaling that of new cars

Supply and Demand 101 — The demand for used cars has skyrocketed during Obama’s Era of Hopenchange. Not only has the disastrous economy hurt new car sales, but the government’s Cash for Clunkers program in 2009 took thousands of used cars out of circulation. This has driven up the market demand for used cars, increasing their value.

And their prices.

The prices for myriad used autos are now approaching those of new cars. So, at least one industry is benefiting from Obama’s recession.

“Going out of business” sign printers are as well.

Reported by The Buffalo News, Used-car values reach new heights:

The used-car market has gone crazy, and it could mean thousands of dollars to anyone looking to sell a quality used vehicle. The value of a 3-year-old vehicle on Kelley Blue Book is up an average of 39 percent to 45 percent over the past three years.

“People are finding they have more equity in their car than they thought,” said Rick Bress, owner of Galaxy Auto Place in West Seneca. “I had ’06s that I sold two years ago that are probably pulling the same price now.”

What happened?

Three years ago, vehicle manufacturers cut down on production, offering fewer leases and fewer daily rental sales, the traditional pipelines for used cars.

The “Cash for Clunkers” program in 2009 took thousands of potential used cars out of the system.

And the slower economy and slowdown in the manufacturing and sales of new cars has tightened the supply of trade-in vehicles. It has created a potential trade-in bonanza for some car buyers.

From Automotive News, Price gap narrows between new and used cars, data shows:

DETROIT (Bloomberg) — Record-high prices for used luxury automobiles are driving more buyers to new-car lots.

BMW AG’s 2011 3-Series compacts and M3 sedans now cost $34 more a month than one-year-old used models, according to Edmunds.com. General Motors Co.’s Chevrolet Corvette is about $12 a month cheaper to buy new than used, the auto-pricing Web site says.

There is an industrywide shortage of used cars in the U.S., the product of manufacturing cuts amid slumping sales the last three years. That means some people have effectively been priced out of the used-car market and into brand-new models. As many as 500,000 new vehicles by mid-2012 may have been sold to people who would have bought used, said economist Paul Ballew.

“There’s a substitution effect going on between new and used,” Ballew, chief economist for Nationwide Mutual Insurance Co., said in a phone interview. “When you get those price gaps closing, you get people that are willing to shop new that wouldn’t have before.”

Two years after U.S. auto sales plunged to their lowest level in almost three decades, the supply of used cars coming off leases or out of rental fleets is at a trickle. With deliveries rebounding slowly, low-mileage used cars will remain so scarce that many shoppers will buy a new vehicle instead of used, said Ballew, a former analyst for GM’s predecessor.

From Los Angeles Times, Used-car prices soaring, slowing depreciation:

Normally, the value of a new car plunges as it’s driven out of the dealership by its new owner.

But slumping auto sales and leases in recent years have changed that axiom by creating a shortage of late model year used cars, according to auto price information company Kelley Blue Book. Ford

The average value of a 1- to 3-year-old used vehicle has increased from $15,000 in 2008 to more than $23,000 in 2011, an annual average increase of nearly 16%, Kelley analysts said.

They expect used car pricing to remain strong because it will take several years of strong new-car sales to replenish the shortage of used vehicles that is pushing prices up now.

“While depreciation typically affects a vehicle’s value most in the first two years of ownership, it will not be as pronounced as it would have been a few years ago when the used-car supply was still very high,” Said Alec Gutierrez, manager of vehicle valuation for Kelley Blue Book.

Three billion dollars for the 2009 'Cash for Clunkers' program was spent by the government... now there's a shortage of used cars, driving up market demands and prices

Categories: Business & Economy, Government, Social and Political Climate
Tags: auto, auto industry, automobile, automobile industry, automobiles, cars, Cash for Clunkers, clunker, depreciation, economic crisis, economic recession, financial recession, Kelley Blue Book, new cars, Obama's recession, old cars, Pres. Obama economic recession, recession, shortage, used car sales, used car shortage, used cars, value, vehicle