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Dwindling Supply in the Used Car Market

If you’re heading to a used car lot expecting to find a bargain, you’re in for a rude awakening. Prices of used vehicles are now at historic highs.

If you’re heading to a used car lot expecting to find a bargain, you’re in for a rude awakening. Prices of used vehicles are now at historic highs. Price tags are up thousands of dollars per vehicle from where they were just a few years ago. Traditionally, it’s been the new car dealers that have struggled as they watch their counterparts selling deeply discounted used vehicles. But, because consumers have opted for used vehicles, they’re selling out. There simply aren’t enough used vehicles available anymore to make the same kinds of deal you could five years ago.

Repercussions of the Economy

There are a multitude of factors that have led to the dramatic decrease in availability of used cars. First there’s the economy, which tanked back in 2007, and is still fighting to recuperate. From 2007 to 2009 (when the recession officially ended), all passenger vehicle sales dropped. But, the hit to the new vehicle sales market was extraordinary. According to the Federal Bureau of Transportation, new car transactions dropped by 36 percent while used vehicles stumbled by just 14 percent.

People became accustomed to giving up the “shiny, new toy” attitude for the “take what we can get” mentality. Meaning buyers were no longer heading to the dealership to drive a brand new Chevy truck off the lot (or any other vehicle for that matter). It’s been common knowledge for as long as I can remember that driving a vehicle off the lot immediately depreciated the value of the car. Those seeking to retain value in all of their possessions — which would include the majority of the U.S. — were just not buying new cars. Instead, if they absolutely had to, consumers began browsing the used car market.

Now as we watch a slow (slow!) recovery begin to take form, people are still finding value in used cars. “Used vehicles are more attractive to consumers than ever,” reports Gary Hoffman of AOL Autos. “They’ve realized that 2- or 3-year-old vehicles are decent substitutes for new ones — thanks to increases in vehicle quality and durability over time.”

An additional hit to the supply of used cars comes from rental companies.  The rental car business generates hundreds of thousands of vehicles that go into the used car market after just a few years of use. It is the biggest attributing component of the used car market. However, with the drop in consumer travel, there has been a drop in demand for rental cars, leading them to dramatically reduce their fleets. According to, “industry figures compiled by Automotive Fleet magazine show that rental fleets fell from 1.6 million in 2007 to 1.175 million last year — eliminating more than 400,000 available used cars.”

Cash for Clunkers

Another factor in diminishing the supply of used vehicles came from the Car Allowance Rebate System, also known as the CARS program, and more commonly referred to as Cash for Clunkers. This $3 billion, federally backed program was instilled in July of 2009 and intended to provide economic incentives for consumers to trade “clunkers” to put toward the cost of a new, more fuel-efficient vehicle. The program was initially advertised as a stimulus for our economy, but two years later we’re seeing the negative effects. By the end of August 2009, the Department of Transportation reported there were 690,144 dealerships filing for rebates. They say the average improvement in fuel efficiency was estimated at nearly 60 percent, so in regards to the economy, this program was a huge win. And, it did encourage consumers to re-embrace the new car market for the first time since the recession began.

The negative side effects of the Cash for Clunkers program was, however, many hundreds of thousands of older vehicles have been taken off the road for good. The CARS program released this statement to Congress upon completion of the environmentally savvy incentives plan; “The CARS program achieved the objectives set out by Congress to increase automotive sales and aid the environment. In just a few short weeks of sales, nearly 680,000 older vehicles were replaced by new, more fuel-efficient vehicles. The nation’s economy benefited immediately from this stimulus program, which caused a distinct upward movement in GDP and created or saved tens of thousands of jobs at a very critical time in the recovery process.” No one is here to argue the success of this program. It was crucial in aiding the recovery, inviting people to once again become consumers. However, it was one of the leading causes in the diminishment of supply of used vehicles.

The Quake Felt Around the World

And then, there are the environmental factors that have influenced the supply of older vehicles — inducing the pricing structures to fly through the roof. On March 11, 2011 at 2:46 PM local time a 9.0 magnitude earthquake struck northeast Japan. This massive quake then triggered a tsunami, and experts believe it actually moved the whole planet by about 10 inches, shifting the main island of Japan by nearly eight feet.  

The quake/tsunami combination devastated production of new Toyotas, Hondas, Nissans and Mazdas. Not to mention all red paint used by most makes worldwide. Without these popular fuel-efficient vehicles available, it dramatically increased the demand for late-model used vehicles of those cars, and part — which are needed to repair any model for resale. Used car dealerships are actually running out of these cars. The quake was the final straw in driving up used car prices. While the increase in price was already occurring, this immediate disaster has dramatically reduced the supply of new vehicles and amplified the demand for late-model used vehicles.