Why Used Cars Are In Such High Demand

Published: February 22, 2013

Why Used Cars Are In Such High Demand, A plunge in new-car sales a few years ago is having a major impact on the market now. Amid New Car Boom, Used Cars Are Gold, A few weeks ago, Justin Severson put an ad on Craigslist to sell his 13-year old Honda, and within a few minutes an eager and unexpected buyer was on the phone-a local auto dealer named Doug Waikem.

Mr. Severson drove his Accord to the dealer’s showroom two days later and picked up $5,200 in cash. The dealer “gave me a fair price and it was handled within a few days,” said the 31-year-old Uniontown, Ohio, resident.

The transaction illustrates a trend rippling through the rebounding U.S. auto market: used cars are so scarce that retailers like Mr. Waikem are scrambling to find suitable vehicles-and paying top dollar when they do.

“I am spending more time now trying to buy cars than sell them,” said Mr. Waikem, who has seven new-car franchises in Northeast Ohio. He parks delivery vans that advertise his purchases at high school sports events and uses a computer program which alerts him whenever local used-car postings appear on Craigslist.

The shortage of used cars stems from the deep plunge in new-car sales between 2008 and 2010, and the virtual disappearance of new-car leases during the financial crisis. As a result, three-year-old cars are now hard to find and even older models are holding their value.

Another factor is a change by the three Detroit U.S. auto makers. To keep factories humming, they once leased tens of thousands of new cars to rental car fleets and then moved them onto dealer lots as used models after a few months.

There are fewer of those vehicles because manufacturers cut excess production capacity in recent years. Cash-for-clunkers rebates also took many older vehicles off the road.

The scarcity has pushed up used car prices, often to the point that consumers who finance a purchase with subsidized interest rates can get brand new vehicles for about the same as a monthly payment required for a late-model used car.

A 2013 Toyota Corolla LE now sells for about $18,000 new and a 2010 model costs about $14,200. However, monthly payments would be about $300 for each, assuming the new-car buyer gets Toyota’s 1.9% for 60 months rate and the used-car buyer pays a 5% or higher interest rate.

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