Why Are Used Car Prices Are So High?

If you are currently in the market for a good quality 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 a lot of reasons for it, but they all basically boil down to the law of supply and demand. When the supply of an item is low or the demand for it is high, the price will go up. Currently, the supply for used cars is very low and the demand for them is very high, so both are regret ably happening. The demand for used cars is way up because many people who would normally only buy a new car are now in the market for a used car. Concerns about our economy are steering those people away from buying large ticket items, like a new car.
The supply of used cars in the market has dwindled for a lot of reasons. One of those reasons is the government’s Cash for Clunkers program. That was the program that was operated last year and was supposed to stimulate the sale of new cars and thus our economy. Under the Cash for Clunkers program, people were encouraged to trade in their running car that got poor gas mileage and purchase a new energy efficient car. They were given a voucher of up to $4500 to use towards the purchase of the new car. 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. As a result almost 700,000 running car did not go into the used car market.
Another reason for the shortage in the number of available used cars is that a lot of motorists are choosing to keep their current 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. Under normal circumstances, those institutions would 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.
Other thing adding to the high price of used cars is the difficultly for people to obtain a loan to purchase a new car. People who are not able to get a loan to buy a new car, are forced to look for a less expensive car, namely a used car. Unfortunately there are not enough quality used cars to go around.
When the economy begins to sufficiently improve, banks will be more willing to lend money to buy new cars and the sale of new cars will begin to increase. When that finally happens, the supply of used cars will increase because of the trade-ins and the price of those used cars will finally start to come down. Until that time comes, the price of used cars will remain high.