If you are in the market for a good used car, you are probably experiencing something that is usually only associated with new cars, namely Sticker Shock. So, what is causing the price of used cars to be so high? There are many reasons for it, but they all basically boil down to the law of supply and demand. When the supply is low or the demand is high, the price will go up. Currently, the supply for used cars is very and the demand is very high, so both are happening. The demand for used cars in up because many people who would normally buy a new car are now in the market for a used car. Concerns about our economy are steering people away from large ticket items, like a new car.
The supply of used cars in the market has dwindled for many reasons. One of those reasons is the governments recent Cash for Clunkers program. This was the program that was supposed to stimulate new car sales and thus our economy. Under that program, people were given vouchers of up to $4500 to use towards the purchase of a new more energy efficient car when they traded in their used less fuel efficient car that ran. About 700,000 cars were traded in under the Cash for Clunkers program. Since those vehicles were ones that ran, they would normally have gone straight into the used car market. Instead, under the rules of the program all of the Cash for Clunkers cars were destroyed. The result was a 700,000 drain on the used car market.
Another reason for the shrinkage in the number of available used cars is that many motorists are choosing to keep their used cars rather than trading them in for a new or newer one. In addition, there is an extreme lack of cars entering the market from rental car agencies and companies that provide fleet cars to their employees.
Those institutions normally trade their vehicles in for new ones every year or two. At this time, those companies are holding onto those vehicles longer due to our lackluster economy.
When the economy begins to sufficiently improve the sale of new cars will finally increase. When that happens, the supply of used cars will increase correspondently and the price of those used cars will start to come down. Until that time comes, the price of used cars will remain high.