December 3, 2010

The Used Car Bubble

Earlier this year in BusinessWeek I postulated that new car sales could well end up higher than most were forecasting. I believed this only because one of the key factors that had been impacting new vehicle sales has been that the used car market was more than overheated, it was on fire. Stories were drifting in from all over about individuals actually paying more money to buy a year-old Honda Accord than they could buy a new one for. And the stories didn't stop.

Now numerous dealers admit that even they were astonished at how much people were willing to pay for late-model used cars, when the price structure of the market put those vehicles' prices perilously close to that of a similar vehicle new. Moreover, if one took advantage of the Zero Percent Finance offers adding luster to so many sales today, the monthly payment on the new car is often less than the used model's.

Of course it was obvious that the used car market was going to look manic compared to historical pricing. After all, the nation has gone from selling more than 16 million new cars annually to barely over 10 million at the bottom of the market. So millions of late model trade-ins won't hit the used car market for years. Fewer used cars available for resale in a rapidly expanding market equals climbing prices.

Posted by jez at December 3, 2010 9:44 PM | Subscribe to this site via RSS:
Posted to Cars