Cash for Clunkers Pushes Up Used Car Prices

[Hannah Bell]

I was waited to see if anyone would notice. USA Today gets the prize. It was pretty much inevitable that there would be a rise in used car prices following the C4C program. If you require that 900,000 trade-ins get destroyed rather than being resold, this has to create somewhat of a shortage in the used car market. It's remarkable that no one seemed to have noticed (there were big jumps in used car prices in the CPI for both August and September).

-dean baker, beat the press

http://content.usatoday.com/communities/driveon/post/2009/11/620000959/1

[tridim]

1. Or maybe it's because of increased demand due to new cars being unaffordable?

[ChairmanAgnostic]

2. actually, given the new technology and increase in safety and performance,

car prices have been surprisingly low, compared to inflation.

The real problems are 17.2% unemployment, and a refusal of banks to issue car loans.

[tridim]

7. Right, that's the unaffordability I'm talking about.

I'll probably never be able to buy a new car ever again thanks to my credit score which is being decimated as I type, through no fault of my own. This is happening to millions of other Americans as well.

Used cars are the only option, thus the increase in demand and price.

[JVS]

24. I remember reading before c4c that used cars were going up in price for that reason.

c4c must have some effect on supply in the used car market, but I would think the impact would be mitigated by the facts that 1) a lot of clunkers came in barely running. I know that I limped in there with mine and it would have been on the scrap heap within a year. 2) a lot of the clunkers were traded in earlier than normal because the owners wanted to get a good deal when possible. This means that rather than thinking that all of the clunkers would have been on the market right now, the effect of the shortage is spread out over several years. Of course, another possibility is that used car salesmen are using the publicity of c4c to claim a shortage and thus negotiate from a higher pricepoint with the consumers.

[napi21]

3. Not sure I buy that story. That may be what the used car dealers want you to believe,

but with all the cars already on the hwys, 900,000, all that gas guzzelers, isn't that big a #. If I were selling a car, I would want to get the best price possible but if they don't sell many at the higher price, they'll come down again.

[optimator]

4. I need a radiator

Some of the used scrap auto parts cost almost as much as new parts or are out of stock.
Well, at least the yuppies got new gas guzzlers off the backs of the poor. Thats all that counts.
The American Tradition.

[Gold Metal Flake]

8. Shop around.

New radiator prices have plummeted in the last 10 years thanks to imported Chinese replacement parts. Also check the self-service yards because the C4C cars went there. The yards local to me had lots of C4C cars being stripped for parts, including radiators, and their prices had not increased. A sudden increase of late-model parts in better shape that what usually is offered in used parts yards. I wrote a report on it:
http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=389&topic_id=6616290

Ebay is also a good source for replacement parts at better than over-the-counter prices.

[Xenotime]

5. Buying a used car is a bad financial decision.

They break down more than new cars and spend more time in the shop.

[ORDagnabbit]

6. I disagree...your "new" depreciates immediately upon driving it off the lot and continues too

every single year by 20% or more.

[blues90]

14. It's true

I worked at a large ford dealership in the service dept . Many new car buyers were up side down on their payments meaning the car was worth much less than what they owed. One young lady wanted to sell her new ranger and was taking a loss at 7,000 I talked to the new car salesman and was told they could get these for less than 2,000 all day long.

[MercutioATC]

9. Actually, buying a NEW car is a worse financial decision than buying used.

Plus, you can afford cars that would be out of reach when new.

[Blue_Tires]

17. +1

the only time buying new makes sense is when it's a model or brand with VERY little depreciation so in 2 years (if you take care of it) you could still get back most of what you put in (Porsche, BMW)

[MercutioATC]

18. Hyundai Sonata

retains a whopping 15% of its value after 5 years...

[EOTE]

10. Really?

I purchased a 2001 Lincoln LS V8 in 2004 that had 34k on it. New the car would have sold for around 40K+, but in perfect used condition and only 34k miles on it, I picked it up for around $16k total. It ran perfectly for the 30k miles I had it for before I sold it to a friend for about the same I paid for it. Getting rid of that car was one of the worst decisions I've made. I'm now looking for the same car, but with the V6 6-speed combo, but they're hard to find with low miles. Unless I win the lottery, I don't think I'll ever buy a new car. It's really not worth it.

[wuushew]

11. link?

[tuckessee]

12. Which new car dealer do you work for?

I can't believe anyone could say what you said with a straight face or without an agenda.

[Blue_Tires]

15. that's why you have to be smart while buying used...

[Xithras]

20. Buying a used car is almost always a sounder financial decision.

Especially if the financing term is 24 months or less, or you're paying cash.

The market value of a vehicle, it's actual value on the open market, is determined by market conditions in the area where a vehicle is being sold. The sales price of a new car is almost always substantially higher than its market value (try to buy a new car from a dealership and then sell it for what you just paid for it...even if you trailer it away from the dealership and put 0 miles on it, you won't be able to do it). If you finance a new car purchase, you instantly have negative equity. If you pay cash for it, you instantly lose a sustantial portion of your purchase value.

Used cars tend to be priced much closer to their actual market value, meaning that a used car will nearly always be worth its financed value.

As for reliability: It isn't 1985 anymore. Most used cars today are structurally good for a couple hundred thousand miles, at least. More importantly, even if you DO get a lemon, the cost of repairs will almost ALWAYS be a fraction of the financial losses that would have been taken in a new car purchase. The last time I bought a new car, it lost about $4000 in value the moment I drove it off the lot (and some cars are much worse than that). I can't remember the last time I spoke with someone who had a $4000 auto repair bill. Heck, my neighbors daughter totally blew the engine in her 2004-5 Beetle a few months back (college age girl who didn't get that "steam from hood" was a bad thing and kept driving), and I think the bill to replace the whole engine was only a couple grand (he was ranting about the fact that his OLD Beetle had several engine replacements, and those were only a few hundred bucks). Unless you're buying a used Mercedes, it's improbable that the repair bills on a used car would be more expensive than the losses taken on a new car purchase.

[JVS]

26. Generally used cars are a better decision, although some cars...

retain resale value so much that it's probably not worth it. I swear that when I look in the ads for Hondas that are not that old the owners are trying to get more than they paid new.

[bobbolink]

29. Oh, great news! So, you are going to buy NEW cars for those of us who

can't afford them!

GREAT news!

[happy2bhere]

13. I am mostly bothered by the waste in this program

Crushing perfectly good cars just to get a few miles better gas mileage just doesn't seem good for the environment, meanwhile real old clunkers getting 7 miles to the gallon didn't qualify. Many people driving real clunkers couldn't afford their nice cars which had to be crushed.

And then maybe this sounds crazy, but with the rise in homelessness, the least they could do was fix up the cars so people could sleep/live in them.

[blues90]

16. It does seem like a great waste

They were already built and running which is where most most waste is created then to just junk them seems insane.

[Hannah Bell]

19. restricting supply = raising prices. that's the point of crushing them.

just like farmers dumped perfectly good milk during the depression, just like the debeers diamond cartel was prepared to dump diamonds into the ocean during a period of high supply/low prices prewar.

the "save the environment" thing = bs. crushing cars to reprocess the metal (waste the plastic) into new cars doesn't do diddly for the environment.

[Blue_Tires]

21. trying to blame this on C4C is pretty thin...

of course, the story mentions less new car sales = fewer trade ins for used sales, and the fact that government/rental fleets are holding on to their cars a little longer...but that story hook by itself isn't sexy enough to draw readers in until mentioning the Obama program...

i mean, honestly...complaining about an increase in used car prices?? shop around...negotiate harder...and if someone is too lazy to do those things, just WAIT a few months...

this is almost as shameless as that 'broke mechanics' story the WSJ ran...

[Hannah Bell]

22. nearly 1 million used cars scrapped in a period of months instead

of entering the used car market.

i'd say that limits supply. which, according to economic theory, affects prices.

unless someone's repealed the law of supply & demand lately, i don't see any "shameless" about it.

[Blue_Tires]

23. point taken

and i also don't see how a temporary rise in used car prices is a major catastrophe...even when they are up, there are still plenty of deals to be found...

[JVS]

25. Those millions of cars were not all going to enter the market in those few months

and some of them would have never re-entered the market anyway because they were too beat up. I traded in a real POS, it wasn't going anywhere.

[Hannah Bell]

31. now they're not going to enter the market at all.

trade-ins had to be drivable, insured the entire year prior to the trade-in, & less than 25 yrs old ('85 or newer).

if a car is worth insuring & drivable, it's worth something to someone.

[gmoney]

27. Then don't buy one?

If the price is too high on the used car market, don't buy one right now. Or buy one you can afford that may not be as spiffy. Or if it's worth more, maybe you can get a larger loan to cover it.

What if you want to SELL your car? Maybe it's good news for those people who are looking to trade up or trade in? Their glass is half full, no?

I also agree with the sentiment expressed here that with nobody able to afford new cars, THAT must be having a significant impact on demand for used cars, at least equal to or greater than C4C.

And yes, it would have been nice to let people trade "junkers for clunkers" instead of scrapping the "clunkers" as they did, but they didn't. I'm guessing the dealers wouldn't want to mess with it, and there was no way of quickly implementing the infrastructure of a government program to make it happen. "Uncle Sam's Used Cars" in every town across the USA?

[Warren Stupidity]

28. Well then I'm sure the price has now dropped or soon will.

As the C4C is long over and the supply of used cars available to the used car market is right back where it was before C4C, or will be shortly. Must be the Evile Spekulaters who done this.

[anigbrowl]

30. Say it's not so Captain Obvious

Who would have imagined etc. etc.

[Howzit]

32. Instead of crushing the "clunkers" they should have given them to a 3rd world country, or a charity