Cash For Clunkers "Used Car Prices Skyrocket"
- Thread starter Jan Itor
- Start date
It was largely the result of increased demand for used cars created by the Great Recession, that made the price of new cars out of reach for many people.
False, the number of cars produced GREATLY out numbered the people. There was too much supply for the little demand. Not to mention that foreign suppliers were more in demand than local.
Cash for Clunkers was just a small part of used car increases. The main factor was after the market collapse banks essentially quit leasing cars for a few years. This means off-lease cars dried up by 2011 creating a shortage of 3 and 4 year old cars. Also, for financial reasons people started keeping their cars longer pushing the average age of cars on the road to over 10 years for the first time ever. Now when people trade these old and miled out cars in they are not good for resale.
When you look at the price of new vehicles it's no wonder that used vehicles are in high demand, thus driving the prices up.
I would say it was an intended consequence. The whole point was to drive up demand for new cars. If used cars cost more, more people buy new. Nothing nefarious about that.
While this could be true, you will never see me buying new. The prices are artificially inflated and as soon as it's titled you can drop 20% off the value before you leave the lot. Buying new is nothing more than a status symbol for the owner and the stealership is laughing all the way to the bank.
Is there some statistic that shows used cars are more expensive now then a previous time even when accounting for inflation.
Because in my experience around where I live, I'm constantly seeing a lot of private sale used cars for sale.
Because in my experience around where I live, I'm constantly seeing a lot of private sale used cars for sale.
It's basic economics that if there are fewer used cars, then the price of used cars would be higher.
The real problem with the cash for clunkers is that because these cars that were turned in were completely destroyed, it induced a shortage of parts for remaining vehicles, which would cause people to have to replace their cars. Again, demand for the remainder of used cars goes up, so do the prices.
The real problem with the cash for clunkers is that because these cars that were turned in were completely destroyed, it induced a shortage of parts for remaining vehicles, which would cause people to have to replace their cars. Again, demand for the remainder of used cars goes up, so do the prices.
Amazing. I didn't realize used cars were non profit. My inner Steven Patrick thinks it may be an affordability issue.
The program took millions of working used cars off the road. When lower supply met unchanged demand how could it not be at least partly responsible for the price increase? To say any thing different is to deny basic economic realty. It's what happens when ill conceived government policy is brilliantly pulled off. It's bad news for the regular folks.
Wow for someone that always acts as if they know everything about anything, I would have thought that you would know the difference between wholesale and retail values.
I think he does in this case. You and your comparison are greatly exaggerated. Your statement applies much more to used vehicles than it does to new, which is basically the opposite of what you conveyed.
IMO there are multiple factors in fewer used cars being available and higher prices charged for those available.
Personally I have never bought a new car and always purchase 1-2 year old program vehicles. Used to be a large variety with as low as 5K-6K miles on them. Now most are going to be 2 years old with 20K+ miles because the business fleets (including rentals) have tightened and purchase fewer vehicles driving them more.
Cars are being built to drive longer. Used to be most cars were starting to wind down at 100K miles and now 150K is the new 100K with many vehicles having an estimated productive life of 200K. Very simple. Cars are costing more and capable of more miles so people are hanging on to them longer.
If you finance your vehicle, IMO that is even encouraging people to hang on to their cars longer. It once was that the normal car loan was 36 months used and 48 new. Now for new and near new program vehicles institutions will go out to 96 months (8 years) at normal non promo interest rates. Most people tend to hold on to it until it's paid for or at least paid down to the point they have decent equity in it.
And yes..... cash for clunkers has contributed. IMO the impact was worse earlier right after the program BUT the prices did spike after the program and never really have gone back down.
Personally I have never bought a new car and always purchase 1-2 year old program vehicles. Used to be a large variety with as low as 5K-6K miles on them. Now most are going to be 2 years old with 20K+ miles because the business fleets (including rentals) have tightened and purchase fewer vehicles driving them more.
Cars are being built to drive longer. Used to be most cars were starting to wind down at 100K miles and now 150K is the new 100K with many vehicles having an estimated productive life of 200K. Very simple. Cars are costing more and capable of more miles so people are hanging on to them longer.
If you finance your vehicle, IMO that is even encouraging people to hang on to their cars longer. It once was that the normal car loan was 36 months used and 48 new. Now for new and near new program vehicles institutions will go out to 96 months (8 years) at normal non promo interest rates. Most people tend to hold on to it until it's paid for or at least paid down to the point they have decent equity in it.
And yes..... cash for clunkers has contributed. IMO the impact was worse earlier right after the program BUT the prices did spike after the program and never really have gone back down.
Soooo......'too many cars' and 'too much supply for too little demand' drove used car prices UP....
Someone doesn't understand basic economics (or much else, for that matter)
This is where you are incorrect. You are making the assumption that used vehicles can only be purchased from a dealer.
Personally I wouldn't buy a new vehicle. I just shoved my 15 year old Suburban onto a lot and exchanged it for a 2015 Acadia with 15000 miles on it. I drove it multiple times, took it to my mechanic to let him give it a check, and I got it at a discount versus new. It has a lot of warranty left on it, and I didn't pay the exorbitant IC overhead by shopping at Krueger's in Lone Tree. I also had a hassle free shopping experience versus the IC experience of being set upon like jackals by salespeople.
What did you pay versus new? $3k less?
Edit to add: cargurus has an Iowa Acadia SLE2 (whatever that is) AWD with 6k miles for $33,000....so that must include the used discount.
Looks like a new one at Bob Brown is around $40k, so good choice there.
I didn't look at options other than level and AWD, so they may not be that comparable.
It is a good general rule, but it certainly isn't absolute. Works much better on high-price vehicles, especially with "luxury" options.
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vs. a similar model/same year car with a few miles on it, sure.
But not for a 2-3 year old vehicle. Plus, you eat quite a bit in registration fees in the first 3 years with the value on a new vehicle. Insurance is higher as well, based on vehicle replacement value.
If you are financing cars (unless you get a 0% deal and good price) you really have no business buying new. Save your $300-600 monthly payments and save up cash for a solid used car. When you have no car payments, you can easily save $3000-5000 or more per year for your next car, for retirement, or for some kick-ass vacations.
Car repairs on a reliable vehicle are rather small in comparison to monthly payments on a new vehicle. For example, $300 a month car payments equate to $3600/year. That is more than the cost of a transmission replacement (every year!), which would be a major fix. Most minor fixes are <$500, if you find a good independent mechanic and avoid dealerships. Plus, you'll often find the tires on new cars are not the greatest quality, either, although they are 'new' and good for at least 25k miles.
Like clockwork:
You have no business financing a car, what a stupid move...
...you should use that money, instead, on something that I, myself, personally prefer...
You have no business financing a car, what a stupid move...
...you should use that money, instead, on something that I, myself, personally prefer...
hhwut?
A car, new or used, is a depreciating asset. It costs you money in registration fees, taxes (on purchase cost) and insurance; higher priced, new cars eat more out of your bank account. Sure, they mostly require zero maintenance, but that's a small ticket price compared with monthly payments.
Ask any financial planner if you should spend your money on a 'new' car, or put that cash into retirement (or non-retirement) savings. $5000-6000/year is quite a lot to spend on a car loan, but that's exactly what many people end up paying out; some pay more like $600-700/month on higher end SUVs, which is closer to $7000-8000/year.
When you own your house, have ample retirement savings and plenty of money for vacations/other perks, that's when you consider spending on new cars with all the fancy new add-ons.
People generally do not realize how much they are paying out, in total, on cars and vehicle expenses. And, generally speaking, a depreciating asset is not one you should be financing.
Didn't you just post that cargurus showed a similar used model $6k-7k LESS than a new one? That's a decent wad of cash; every dealer wants to '4-box' you into showing you how low they can make your monthly payments (I had several try this trick on me even AFTER telling them I was paying cash for the vehicle). But that mostly is just putting you back 'into the bucket', where your money is going to loan/interest payments, and not toward buying your next car, and you generally OWE more on your car than it's worth. RARELY do you have more equity in your 'new' car vs. your loan amount....very different from a house, which generally is going to increase in value over the long-haul.
60 million cars made each year
It would take 17 years to make one car for 1 billion people, by then half of those people will have already needed a new car
Buying a car isn't a financial plan, but glad you feel qualified to tell others what to do with their money, and then tell them to use their money on things that aren't even assets, but things you'd personally prefer over a new car.
Yes, that specific car appears to be good savings, glad you believe strongly in small, irrelevant sample sizes.
Let's try some others to see how big of a "dupe" new-car buying is!
Ummmmm, how about under 15k miles on:
Subaru Forester
Mazda3
Toyota Corolla
Honda CRV
In any event, it costs, what, $1500 to finance a $30k car over 5 years? So you pay 1500 to have available $24,000 that first year. Hardly a retirement buster even ignoring what else you could do with that 24k.
Yes, that specific car appears to be good savings, glad you believe strongly in small, irrelevant sample sizes.
Let's try some others to see how big of a "dupe" new-car buying is!
Ummmmm, how about under 15k miles on:
Subaru Forester
Mazda3
Toyota Corolla
Honda CRV
In any event, it costs, what, $1500 to finance a $30k car over 5 years? So you pay 1500 to have available $24,000 that first year. Hardly a retirement buster even ignoring what else you could do with that 24k.
Just quick-googling Cargurus:
Subaru Forester - $28,000 for 4k miles, new listed at $30k MSRP
Mazda3 - none listed used
Toyota Corolla - $16,700 for 15k miles, new listed at $18k MSRP
Honda CRV - $28,000 for 5,500 miles, new listed at $30,500 MSRP
Ok, first those new listings are MSRP, so you are paying less, just depends on how much. But the average there appears to be $2,000 "savings" over MSRP. So for one model-year older, one year of warranty use, and having an owner in it (some of them) you can save about $2000......maybe, depending on actual negotiations.
Again, that "20% devaluation when you drive it off the lot" is, frankly, absurd. Certainly the higher, more "luxury" car/options you go, the more "deal" making there is. But as with all other advice, you should research the car/value/options, not simply stick with rigid idiocy like, "NEVER BUY NEW you baboons!" or "If you have you finance, save your money to buy it used 8 years from now!"
Hell, there are many people who spend a large percentage of their day inside their vehicles, *gasp* god forbid they spend money on that. You are right, they shouldn't buy a financial-planning-disaster of a depreciating asset when they could save that money and go on a "kick-ass vacation" which YOU would prefer to do.
Subaru Forester - $28,000 for 4k miles, new listed at $30k MSRP
Mazda3 - none listed used
Toyota Corolla - $16,700 for 15k miles, new listed at $18k MSRP
Honda CRV - $28,000 for 5,500 miles, new listed at $30,500 MSRP
Ok, first those new listings are MSRP, so you are paying less, just depends on how much. But the average there appears to be $2,000 "savings" over MSRP. So for one model-year older, one year of warranty use, and having an owner in it (some of them) you can save about $2000......maybe, depending on actual negotiations.
Again, that "20% devaluation when you drive it off the lot" is, frankly, absurd. Certainly the higher, more "luxury" car/options you go, the more "deal" making there is. But as with all other advice, you should research the car/value/options, not simply stick with rigid idiocy like, "NEVER BUY NEW you baboons!" or "If you have you finance, save your money to buy it used 8 years from now!"
Hell, there are many people who spend a large percentage of their day inside their vehicles, *gasp* god forbid they spend money on that. You are right, they shouldn't buy a financial-planning-disaster of a depreciating asset when they could save that money and go on a "kick-ass vacation" which YOU would prefer to do.
No, depending on the state you live in (Iowa), you pay a LOT more to register 'new' vs. 'used' that is 3+ years old. That $300-500 extra cost, over 5 years, is another $1500 or more cash outlay, mostly unrelated to depreciation.
Next, consider that from a depreciation standpoint, the residual value curve drops fastest in the first 3 years of ownership. Older cars still depreciate, but generally more slowly. So, a 3-year old vehicle probably saves you at least $1000-2000 in depreciation savings over the same ownership timeframe.
I'm not saying 'don't buy a new car ever'; just consider how much it's actually costing you, and whether owning 'new' is a bigger priority for you than retiring a few years earlier, or having the cash in savings for something else.
My guess is from a registration, depreciation etc. standpoint, that $30k car is probably costing you more like $5000-6000 (probably a lot more) over 5 years. A similar, reliable, used model might cost you half that in ownership costs.
The Acadia depreciation example you even posted from cargurus shows more than $6000 or more depreciation, in ONE year if I understood that correctly ($33,000 vs $40,000). That's hardly '$1500 to finance over 5 years'.
Just Googling 'car depreciation vs years' for images, you can find typical curves:
Where that particular graph came from:
http://www.saipanfix.com/blog/?p=210
Here's another comparison:
http://www.treesfullofmoney.com/?p=2999
Baloney. The dealers tag on all kinds of 'extras': 'undercoating', 'delivery charges', pin-striping, etc.
Those dealers don't build all the fancy showrooms with slave labor....they build them using all the add-on costs they charge you when you buy a car from them, and most of that comes from new cars/trade-in 'deals'.
If you are WORKING and LIVING in your car, THEN you can DEDUCT the depreciation on your business taxes. That is a different ballgame, and for small biz, often buying new makes decent sense with the tax breaks you can get. This is typically not the case for the private owner.
Wait, you think people are paying more than MSRP, in general for their new cars?
No, depending on the state you live in (Iowa), you pay a LOT more to register 'new' vs. 'used' that is 3+ years old. That $300-500 extra cost, over 5 years, is another $1500 or more cash outlay, mostly unrelated to depreciation.
Next, consider that from a depreciation standpoint, the residual value curve drops fastest in the first 3 years of ownership. Older cars still depreciate, but generally more slowly. So, a 3-year old vehicle probably saves you at least $1000-2000 in depreciation savings over the same ownership timeframe.
I'm not saying 'don't buy a new car ever'; just consider how much it's actually costing you, and whether owning 'new' is a bigger priority for you than retiring a few years earlier, or having the cash in savings for something else.
My guess is from a registration, depreciation etc. standpoint, that $30k car is probably costing you more like $5000-6000 (probably a lot more) over 5 years. A similar, reliable, used model might cost you half that in ownership costs.
The Acadia depreciation example you even posted from cargurus shows more than $6000 or more depreciation, in ONE year if I understood that correctly ($33,000 vs $40,000). That's hardly '$1500 to finance over 5 years'.
Just Googling 'car depreciation vs years' for images, you can find typical curves:
Where that particular graph came from:
http://www.saipanfix.com/blog/?p=210
Here's another comparison:
http://www.treesfullofmoney.com/?p=2999
So now you are comparing a 4 year old (in the comparo) vehicle to new? And what mileage is on it? Looks like the average 2011 Pilots on Des Moines area Car Gurus ranges from 70,000 miles to 110,000 miles.
Of course buying a 4 YEAR OLD vehicle is cheaper than buying new.
I'm not the one massaging the numbers/stats here. I fully posted the Acadia example. Then I posted 4 other random vehicles. You want to try some more?
'MSRP' is generally the base model charge; ANY dealer is going to list all the tag-on 'features', which often add $2000-5000 to the price of the vehicle. Many of those add-ons, like 'delivery fee', 'undercoat' etc are pure profit for the dealer. So, yeah....you get 'below' MSRP, but then they add on bundles of charges and you walk out the door paying quite a bit more.
If you want to live in the Candyland universe that your 'new' car you just 'screwed the dealer' by getting under book is somehow going to INCREASE in value after you drive away, you're crazy. Again, those big dealerships don't build the fancy showrooms off LOSING money to people by selling cars for less than they are worth. Use your brain here....
Oh Christ. F***, pick the dealer, YOU set the parameters.
Dealers need to cover overhead, then they make their money on their shops, NOT THEIR SALES.
Subaru Forester - $28,000 for 4k miles, new listed at $30k MSRP - Ramsey Subaru - listed on their website for less with the "Ramsey Price!"
Mazda3 - none listed used
Toyota Corolla - $16,700 for 15k miles, new listed at $18k MSRP - Toyota Des Moines lists a Corolla L (compared to the used one) $17,124...so already chopping $900
Honda CRV - $28,000 for 5,500 miles, new listed at $30,500 MSRP - Smart Honda EX-L AWD less than MSRP and a "Get EPrice" which is even lower.
Feel free to sign up for those two sites emails...you pay LESS than MSRP. You can sign up for "extras" all you want...I'm not sure how you thinking adding them on in THIS DISCUSSION is somehow apropos.
Look, this discussion was simple, the claim was, basically, that you "Drive off the lot and depreciate it", which is largely OVEREXAGGERATED, as I've demonstrated using Des Moines listings. (feel free to search cargurus yourself)
Now, DUH, buying a 4 year old car with 50-100,000 miles will be cheaper, NOW and in the LONG RUN than buying new. But you also get a 4 year older car, a 4 year older warranty, 4 year old (actually about 8-10) technology, etc.
I called you out, because you said it was dumb to buy new, especially when you have to finance. And then you said it should be used on other things like vacations...so you substituted YOUR OPINIONS in an attempt to inform what others should do with their own money.
As I said, like clockwork.
Now, DUH, buying a 4 year old car with 50-100,000 miles will be cheaper, NOW and in the LONG RUN than buying new. But you also get a 4 year older car, a 4 year older warranty, 4 year old (actually about 8-10) technology, etc.
I called you out, because you said it was dumb to buy new, especially when you have to finance. And then you said it should be used on other things like vacations...so you substituted YOUR OPINIONS in an attempt to inform what others should do with their own money.
As I said, like clockwork.
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