By on August 26, 2010


Edmunds is tracking an $1,800 average increase in the price of used cars, as new-car sales have faltered with the shaky economy. But the increase in prices isn’t solely due to Americans tightening their belts and buying used instead of new. The biggest price increases by nameplate appear to be for large SUVs and vans like the Cadillac Escalade, Chevy Suburban, Dodge Grand Caravan, BMW X5 and Acura MDX. Edmunds senior analyst Joe Spina explains

So many economic factors affect automobile sales and prices. It’s believed that the program delayed purchases prior to the program and also pulled sales forward while in place. The program also eliminated inventory of older vehicles that were traded and then scrapped… Now, those who need trucks and large SUVs are buying them and in many cases are turning to used vehicles as a way to save money. Prices are high because this demand comes at a time when inventory is low as a result of the current shortage of lease returns and trade-ins for vehicles of this type.

Edmunds’ “Large SUV” segment shows prices up by nearly $7k per vehicle (over July 2009), compared to increases of less than $500 per vehicle for midsize and compact cars over the same period. Gas prices, meanwhile, are nearly unchanged from July of last year. Clearly something is affecting the price of used SUVs… if it’s not Cash-For-Clunkers, what is it?

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17 Comments on “Used Car Prices Rise, But Is Cash For Clunkers To Blame?...”


  • avatar
    ajla

    Well if used inventories on large SUVs are low because of few trade-ins and lease returns, couldn’t that be blamed on high gas prices? Or just poor sales in general?

    Nobody bought them new a few years ago so there is now a shortage of used.

  • avatar
    gslippy

    Maybe the price of new SUVs has gone up, thereby increasing demand (and subsequently price) of used SUVs.

  • avatar
    jpcavanaugh

    I think that the used prices of big trucks and SUVs were inordinantly depressed last year. They took a hit in 2007-08 because of high gas prices. This fear lingered a bit, then they remained depressed in 2008-09 because they were expensive vehicles in a bad economy. With steady fuel prices and really expensive new versions, it stands to reason that prices will jump more on these with highter relative demand.
    Lets think like an economist. In 2007, with $4/gal gas, new demand crashed, while there was a very high supply of 1-4 year old used units. High supply and low demand equals lower prices.
    Today, demand is up due to steady fuel prices, while the supply is down dramatically for 1-4 year old units because of low 2007-10 new sales during those years.
    Lower than (historical) average supply and higher than (historical) average demand equals higher prices. This is the bulk of the effect.
    Any C4C effect would only affect the lower end of the market, with smaller dollar amounts involved. Still, the effect would be less supply on older units and more demand as people who need or want an older truck or SUV still need or want an older truck or SUV.
    Conclusion: shorter supply through all price points, and increased demand through all price points equals higher prices through all price points.

    • 0 avatar
      Russycle

      I think jp nailed it. Two years ago gas was $4/gal and climbing, and automakers couldn’t give away full size SUVs. Last summer gas was cheaper but most of us were waiting for it to climb again, keeping demand for guzzlers low. After nearly two years of price stability consumers are complacent and ready for big rigs again. And when prices spike again in a year or two, we can watch the cycle repeat.

    • 0 avatar
      Telegraph Road

      Indeed, jp nailed it exactly. Excellent, jp.

    • 0 avatar

      Agree with you jp. I’ve been monitoring Ford Expedition prices since I’m going to sell mine when I get it cleaned up. The price really took a dive when gas prices went up. I bought my 2000 Eddie Bauer, about 135K miles, for $9,000 and about a year later I could have gotten a similar one for around $5 – 6K. A few years later now they are back up to around $7K with some dealers wanting more than that. Hoepfully will be a good time to sell if I can find someone with the money or good credit.

  • avatar
    jaydez

    I really think it is C4C that is driving up the prices of used SUVs. I mean think about it; what was traded in more than anything else during C4C?

    It took the bottom out of the used truck and SUV, forcing people who would have bought that $3000 explorer into a $5000 explorer or higher. It took too much out of the market and is making everyone who needs or wants an SUV to pay a little more due to a lower supply.

  • avatar
    jj99

    This used car price increase is temporary. When Detroit carmakers went bankrupt, what should have happened is a voiding of UAW contracts by the courts, and Detroit would have been back with much lower new car prices.

    But, what happened is the Democrats got involved and decided to protect the bloated UAW contracts. The Democrats did this because the unions donated heavily to Democrat campaigns. So, the Detroit carmakers all jacked up their prices and now want to make the American consumer support the UAW wages, benefits, and retirement at 48 years old. This new car price jackup pushed many to used cars, and that caused those prices to rise. But, not for long.

    Now, the Asians will quickly bring lower priced offerings that undercut Detroit and this will be the end of Detroit. The Asians can do this because they don’t have the UAW welfare system to support. The UAW will try to stop this by unionizing the Asian car makers, but that attempt will fail. Asian workers saw how the UAW destroyed Detroit, and they do not want to suffer the same fate.

    Already, Hyundai sales are surging because they are undercutting Detroit prices with products that are as good as Detroit. In fact, many Toyota and Honda vehicles, which are proven to have superior quality to Detroit, are cheaper. For example, I see the base Highlander is arould 3K cheaper than Edge and Explorer, not to mention it is a better vehicle.

    The end game is the Asians will flood the market with low priced vehicles superior to Detroit vehicles in a few years, and used car prices will decline again. If I was a Detroit car employee, I would try to get a buyout and run. This is a shame. This country had an opportunity to fix Detroit by terminating the UAW, but instead we will lose the entire industry.

    Detroit can not fool the American consumer to overpay for average quality products just so the UAW can be protected.

    • 0 avatar
      colin42

      “the Asians will quickly bring lower priced”

      Sorry I don’t see it happening. Prices in the US for cars are already much lower than say Europe and Japan, and the Dollars weakness (against the Yen especially) will drive new prices higher. Even if the manufacture builds in the US the commodity price of the raw materials will increase in USD terms.

    • 0 avatar
      Zackman

      End game it is, indeed. First to go was optics, then electronics, steel, appliances, heavy machinery and very soon, autos. Of course this was called out in the late seventies by a railroad industry columnist, John Knieling, who observed all the raw materials being shipped overseas to make steel while the domestic steel industry went belly-up. All those raw materials came back as finished goods.

      I remember a magazine cover from 1975, don’t remember what mag, but the illustration depicted a race where the American in the lead in the guise of an average worker (union?), overweight, trotting along counting his money with a mean, lean Japanese worker on the American’s heels about to overtake him and the American worker doesn’t even notice. In the background were people representing other nations. Very prophetic!

      Welcome to the third world, Wal-Mart shoppers!

  • avatar
    Educator(of teachers)Dan

    C4C tightened up certain parts of the market (mostly with 8cyl) but should not have affected prices across the board. I guessing that a “rising tide lifts all boats.”

  • avatar
    BMWfan

    I think some uneducated consumers panicked when gas got to $4.50 and sold their SUV’s at a tremendous loss, thinking they were going to save money on gas by getting into a smaller vehicle. They have now realized that said vehicle does not meet their needs. It’s hard to fit 10 pounds of “stuff” into a 5 pound sack.

    • 0 avatar
      john.fritz

      Agreed. I have a business acquaintance who practically gave away a paid off late model Ram 1500 in perfect condition and rushed to his local Nissan dealer to part with way too much money for some four cylinder shit box. He will never admit to it but his outright refusal to ever discuss this not well thought-out transaction speaks for itself.

  • avatar
    obbop

    Those exorbitant executive salaries determined by the class of folks receiving them is an enormous financial burden so lets allow mega-millions of highly-educated motivated folks cross the border as we look the other way to bring those multi-million dollar salaries down to a more reasonable 50K$ per year with far fewer perks and no Golden Parachutes and good riddance to stock options.

    An equitable playing field from working-poor to the apex of the socio-economic pyramid.

    What could be wrong with that?

  • avatar
    John Horner

    Last year you couldn’t give used large SUVs away because “lifestyle” buyers where getting out of them as fast as they could thanks to the gasoline price shocks and fears that the price of fuel was only going further up.

    So, this year’s recovery of the pricing of that class of vehicles is more about a regression to the mean than it is anything else.

    Er, sorry! I should have read all the comments first in which case I could have just said: +1 JP!

  • avatar
    snabster

    One question that has gone unanswered is how much Cash for Clunkers has benefited the rest of us by killing demand for gasoline.

    When you look at US gasoline production, as well as gasoline imports, it is terrifying low. VMT have picked up a bit from the lows, and that gap is where C4C might be assisting.

    I say might. because the big flaw for C4C was it didn’t measure how much a vehicle was used. Clearly getting large SUVs out of suburban moms was a win — but a large SUV sitting around and not being driven also doesn’t use gasoline.

    The people I know who really benefited from C4C were redneck famers, who traded in their SUVs for driving for a sedan, and kept another SUV for practical use. Given that they are all avid Fox news views, I’m not sure why TTAC keeps bashing the program.

  • avatar
    bunkie

    JJ99-

    When all you have is a hammer (or anti-union bias), everything begins to look like a nail (or union-caused problem).

    I’d consider adding a few new tools to the old analytical toolkit. Start by re-reading JPs economics-based post which fits the facts far better than a tired, over-used and largely fallacious argument about the UAW.

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