Why High Prices for Used Cars May Linger

by Christopher Freeburn | May 24, 2012 2:01 pm

Why High Prices for Used Cars May Linger

Car buyers looking for big savings on used cars are likely to be frustrated for at least the next few years[1], according to USA TODAY.

During the economic crisis, consumers held off on new car purchases, turning to used cars in order to save money. That drove used car prices to historic highs.

Even though the new car market has been heating up in recent months, with car makers reporting healthy gains in sales of new vehicles, it may still be years before used car prices fall back to pre-crisis levels.

Between 2008 to 2011, 19 million fewer vehicles were sold than during comparable periods in the last ten years.

Prior to the crisis, large numbers of old cars were simply scrapped, not resold. According to industry researchers between 2000 and 2007, the number of vehicles in the U.S. grew from 205 million to 241 million.

But from 2008 to 2011, Americans purchased 48 million cars, while scrapping 47 million older vehicles. That means that there are currently about 240 million vehicles operating in the U.S., a lower figure per American than before the recession.

With fewer cars available for resales, prices rose. Prices for used popular models from Ford (NYSE:F[2]), Honda (NYSE:HMC[3]), Chrysler and Toyota (NYSE:TM[4]) less than five years old have jumped 29% since 2009.

With new cars selling well this year[5], the number of available cars is rising again, but it will take a few years to return to pre-crisis levels and drive used car prices back down.

Endnotes:
  1. for at least the next few years: http://content.usatoday.com/communities/driveon/post/2012/05/why-used-car-prices-will-stay-high-for-years/1
  2. F: http://studio-5.financialcontent.com/investplace/quote?Symbol=F
  3. HMC: http://studio-5.financialcontent.com/investplace/quote?Symbol=HMC
  4. TM: http://studio-5.financialcontent.com/investplace/quote?Symbol=TM
  5. new cars selling well this year: http://investorplace.com/2012/04/as-auto-sales-rise-toyota-boosts-prices/

Source URL: http://investorplace.com/2012/05/why-high-prices-for-used-cars-may-linger/
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