Will you cash in on the used car boom?

Psssst! Want to make some fast money? Sell your car.

That’s right. Your used car could be worth a lot in today’s market. Used car prices are the highest they’ve been in at least 16 years, and are expected to keep rising for at least two to three more months. Usually, new cars start losing their value immediately after purchase and keep losing it by 15 percent or more annually. Right now the trend is reversed. A new car bought last year could be worth more today than it cost new.

For example, the NADA Used Car Guide – which many dealers use to help assess values – has raised its average suggested prices for used small cars by about 10 percent in just the last month. Some popular small car prices have jumped even more. That means that the price of a 2007 Toyota Prius is up15 percent and a 2010 Honda Civic LX sedan has risen almost 12 percent – in one month. In a normal year, used car prices peak in March and decline through June, but this is definitely not a normal year in the car business.

Several factors collided to create this extraordinary price run-up:

The Recession: When the economy tanked in 2008-09, so did new car sales. Unemployment and economic uncertainty translated to fewer sales. People were already keeping their cars longer, both because they cost more and because of better quality, but according to the Polk research firm the average car is now 10.6 years old, up from 9.8 years in the middle of 2007. Also, when credit tightened in 2008 fewer cars were leased. Fewer cars sold and leased then mean fewer coming back on the market now as used cars.

Car Allowance Rebate System (CARS) aka, cash for clunkers: The $3 billion government buy-back program in summer of 2009 had the dual purpose of stimulating the economy and getting rid of energy-inefficient cars. It resulted in fewer used cars in the marketplace.

Rising Gas Prices: Demand for fuel-efficient used cars rises with gasoline prices, putting more pressure on the market for fuel-efficient used cars. More demand + less supply = higher prices. While some experts predict that gas prices will go down this summer, how much is a big question mark. Even at what seems now like a moderate $3.00 per gallon, cars getting 30 mpg are more attractive to buyers than cars getting 20 mpg.

Natural Disasters in Japan: The earthquake and tsunami halted new car production which had a huge impact on availability of new, fuel-efficient Japanese-made cars. It also affected many cars built in the U.S. and elsewhere with Japanese-made parts. With new models of small cars in short supply, the market for used ones has tightened, too.

It’s time to think strategically about car-buying plans.

With used cars commanding top dollar this might be a good time to act. You can get a great price for your used car and buy a new one for not much more than the newer used car you planned to buy. Plus, a new car comes with a warranty and probably even better gas mileage. The downside is that you probably need to jump quickly. New car stocks are dwindling and it could be several months before a full range of options is available again. A domino effect from the Japanese disasters means that all makes will probably experience shortages – American and European, too.

On the other hand, you could choose to wait things out, figuring that your present car will see you through until the economy improves, the market settles down, more used cars are available, gas prices come down and manufacturers start to offer incentives to buy new again. You could, but you might be passing up money for your used car the likes of which you may never again see.

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About timwjackson

Working every day for a better Colorado.
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