Low In Supply, Used Cars Costing Drivers More People have been buying and leasing fewer new cars during the recession, reducing the number of trade-ins, dealers say. And the "Cash for Clunkers" program destroyed thousands of older cars. So, higher "used" prices make new models with incentives more attractive.
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Low In Supply, Used Cars Costing Drivers More

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Low In Supply, Used Cars Costing Drivers More

Low In Supply, Used Cars Costing Drivers More

Low In Supply, Used Cars Costing Drivers More

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  • <iframe src="https://www.npr.org/player/embed/129781218/129822838" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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A used car sits on the lot of John's Auto Sales outside Boston. Prices for pre-owned vehicles have increased because of decreased supply, says an analyst with Edmunds.com. Chris Arnold/NPR hide caption

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Chris Arnold/NPR

Highest Increases in Used Car Prices

Prices cited are for three-year-old vehicles.

Model July '09 July '10 Change
Cadillac Escalade $25,600 $34,715 35.6%
Chevrolet Suburban 20,262 27,193 34.2
Dodge Grand Caravan 11,661 15,629 34.0
BMW X5 30,711 40,843 33.0
Acura MDX 23,109 29,852 29.2

With the economy stuck in neutral, auto dealers have been offering all kinds of incentives and deals on new cars. But prices for used cars have actually been rising quite sharply.

For example, the average price for a three-year-old Chevy Suburban is up more than 30 percent over last year's.

According to Gary Collins, owner of Auto Brokers, a used car lot near Boston, buyers looking for a Ford F-150 extended four-wheel drive pickup with just over 100,000 miles would have paid at least $2,000 to $3,000 less last year than the current asking price of $13,500.

With the economy just barely growing, why are used car prices going up so much? As is often the case in economics, it has to do with supply and demand. According to Joe Spina, an analyst with Edmunds.com, there has been a decrease in the supply of used cars.

"The availability of cars is half of what it used to be," says John Esterakis, who runs John’s Auto Sales, just down the block from Auto Brokers.

Esterakis explains that with the recession, people have been buying and leasing fewer new cars. As a result, there have been fewer cars coming off leases and getting traded in. The "Cash for Clunkers" trade-in program did not help, destroying used cars that could have been bought.

So you may not have realized it, but the nation is in the grips of a used-car supply shortage. And that is what has been driving prices up.

"The cost of [used] cars has increased probably 30 percent," Esterakis says.

Some of that big jump in price is a rebound off of unusually low prices from two years ago after the financial crisis hit. But even over the longer term, according to Edmunds.com, most used SUVs and minivans are up more than 10 percent over three years. Compact cars are up around 5 percent.

And that has been a source of unhappy surprise for used-car buyers, like nurse practitioner Nina Jay. She says it took a lot of work to find an SUV that she likes for less than $20,000.

"I did have to hunt around. I was looking on the Internet. ... Prices were very high -- up closer to like 25- [to] 30,000," Jay says.

Bob Trane, a Realtor in the Boston area, is also in the market for a used car. He says the higher prices are squeezing him at a time when the housing market is still on shaky footing.

"I'm a working guy," Trane says. "I have a daughter that's just in college who's ... doing her semester abroad, so I had to have extra money for her this year. So, you know, budget-wise, it’s been a little tough."

Spina of Edmunds.com says used-car buyers should also take a hard look at new cars, because of all of the incentives. Meanwhile, Esterakis of John's Auto Sales says used-car dealers like him are not getting rich off of the higher prices.

"We're not doing great. … It costs us more to buy the cars -- a lot more. The profit margins are much less than they ever were before because you have to pay more to get the car," he says.

Still, auto dealers in Boston say sales have started to pick up again over the past couple of months, and that's making some more optimistic about the future.