by Patrick Appel
A reader writes:
Couldn’t this be a simple case of supply and demand? We’re in an economic downturn and the majority of Americans live in areas where a car is mandatory to function. As Americans exercise frugality while replacing a necessity, might they not just be increasing the demand for used cars in the same way store brand groceries have experienced much higher sales? Even at 10-30% higher, they’re still cheaper than new cars.
Cash for Clunkers took a total of 680,000 cars off the market, while total used car sales are around 12 million annually in the U.S. In other words, it took somewhere around 6% of the pool out of circulation (again, a year ago). This is not that much.
Third, neither the list of top makes purchased under the program nor the list of top makes traded in skews towards expensive cars. Toyota, Ford, Honda, Chevy, Nissan, Hyundai and Kia topped the list for makes sold and Ford, Chevy, Dodge, Jeep and GMC were the top 5 for makes traded in, not Acura or Lexus. (Cadillac was 9th on the trade-in list, but accounted for all of 3% of the total.)
Fourth, the actual purchases skewed towards normal, often less expensive, family cars. The top 9 models were (in order), the Corolla, Civic, Camry, Focus, Elantra, Versa, Prius, Accord and Fit. They accounted for more than 20% of the cars purchased under the program. The only car on that list that you might characterize as an extravagance is the Prius, although the gas mileage advantage probably makes the net cost more comparable to cheaper cars. Throw in the other smaller/family car models in the top 20, and they account for more than 30% of the cars purchased under the program. (Oh, and the last five models on the list are all Volvos.)
Fifth, you expect used car prices to increase in difficult economic times because people buy fewer new cars. In fact, the interesting data point here is expensive cars are increasing in price much more than the low end cars, most likely because the supply has gone down as owners of expensive cars choose not to buy new ones.