Where Did All The Used Cars Go
Posted: Tuesday, August 09, 2011
by Jesse Mobley
EconomistNow
With the economy edging its way out of the recession, many consumers are hitting the streets to buy a new ride. But to their surprise, the car dealerships are lacking in one department: used cars! Since last year, small used car values have increased almost 30%—cars such as the Ford Focus and Honda Civic. There is a lot of economics behind this odd jump in car values over the past year, dating back to 2009.
Other factors of 2009 such as the credit freeze created consumer doubts in purchasing new cars, and at the same time caused manufacturers to slow down their production. This double-edged sword created a slump in future used car supply— the supply shortage we are currently experiencing.
Current events such as the natural disasters in Japan have affected the supply chain here in the United States. Not only are cars not being built in Japan due to the catastrophes, but the United States isn’t obtaining the parts that are needed to produce new cars. So how does the manufacturing of new cars affect used car sales? Well, since customers are seeing shortages in new cars, they turn to used cars, thus increasing the demand for used cars. Lastly, we have seen increases in hand-me-downs within families and other organizations that disrupt the supply of used cars.
All these factors play into the increase in value and shortage of used cars. With the Clash for Clunkers government policy, we saw consumers purchase many new cars and the scrapping of the trade-ins which could have been sold on the used car market today. Next, the credit crisis slowed down the output of new cars which, at this point, would have been fueling the used car market. Hand-me-downs have also caused shortages in the supply of used cars in the market. All three facts above have affected the supply of used cars. Japan’s unfortunate events have also led to the increased demand for used cars, because shortages in the supply of new. Factoring in the variables of a decrease in supply and an increase in demand, and other contributing variables, one can understand that the market has balanced itself to a place where 2011 values and prices are 30% higher than they were in 2010.
In closing, it’s not inconceivable that consumers who purchased their cars last year might actually make money off of this depreciating product when selling it on today’s market. At the same time many of my peers might find this article bizarre mainly because when they pass by their dealership they see no supply shortages sometimes. Remember when looking at the economy it’s not just your neighborhood, rather the whole country.
With the economy edging its way out of the recession, many consumers are hitting the streets to buy a new ride. But to their surprise, the car dealerships are lacking in one department: used cars! Since last year, small used car values have increased almost 30%—cars such as the Ford Focus and Honda Civic. There is a lot of economics behind this odd jump in car values over the past year, dating back to 2009.
The well-known “Cash for Clunkers” plan, a heavily-debated government program, was started in 2009 to jump start the ailing automotive industry during the financial crisis. Customers showed great reaction to the program trading in gas-guzzling used vehicles for small, new, fit, and fuel-sipping counterparts. This program took millions of new cars out of circulation which, in return, are now affecting the used car markets today.
Other factors of 2009 such as the credit freeze created consumer doubts in purchasing new cars, and at the same time caused manufacturers to slow down their production. This double-edged sword created a slump in future used car supply— the supply shortage we are currently experiencing.
Current events such as the natural disasters in Japan have affected the supply chain here in the United States. Not only are cars not being built in Japan due to the catastrophes, but the United States isn’t obtaining the parts that are needed to produce new cars. So how does the manufacturing of new cars affect used car sales? Well, since customers are seeing shortages in new cars, they turn to used cars, thus increasing the demand for used cars. Lastly, we have seen increases in hand-me-downs within families and other organizations that disrupt the supply of used cars.
All these factors play into the increase in value and shortage of used cars. With the Clash for Clunkers government policy, we saw consumers purchase many new cars and the scrapping of the trade-ins which could have been sold on the used car market today. Next, the credit crisis slowed down the output of new cars which, at this point, would have been fueling the used car market. Hand-me-downs have also caused shortages in the supply of used cars in the market. All three facts above have affected the supply of used cars. Japan’s unfortunate events have also led to the increased demand for used cars, because shortages in the supply of new. Factoring in the variables of a decrease in supply and an increase in demand, and other contributing variables, one can understand that the market has balanced itself to a place where 2011 values and prices are 30% higher than they were in 2010.
In closing, it’s not inconceivable that consumers who purchased their cars last year might actually make money off of this depreciating product when selling it on today’s market. At the same time many of my peers might find this article bizarre mainly because when they pass by their dealership they see no supply shortages sometimes. Remember when looking at the economy it’s not just your neighborhood, rather the whole country.
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