Money $marts: Used cars getting more pricey than some new cars


On one level, car buying compares the price of a new vehicle with a used one. As a rule, the latter is always cheaper than the former because of what bean counters call “depreciation.”

The term describes the lessening value of a piece of machinery as it is used, the wear and tear factor. The moment a new car is driven off the dealer’s lot it becomes used, less valuable. One year of driving later, depreciation can wipe 20 percent off a car’s value and each subsequent year the same.

Besides depreciation, other factors affect value: low mileage is better than high; fuel efficient better than a guzzler; quality perceptions may allow certain brands (e.g. Lexus) to hold higher value. But all things considered, a used car is generally a lot cheaper than a new one so many consumers look for used when in the market for a car. They’re in for a surprise.

The used car market is under siege; demand is soaring. Shortages, due to the earthquake and tsunami, of new Japanese brand cars have nudged buyers to the used car market where such brands have a reputation for quality. Combine that with the continued slow economic recovery, buying a used Toyota or Honda can make economic sense. But a surfeit of like minded consumers has driven up prices by as much as $3,000 in the last six months.

Price hikes are spilling over to other brands as well because of another problem: short supplies. Only a couple of years ago, the government program of new car subsidies accompanied by trade-ins of “clunkers” resulted in the destruction of more than 600,000 older used cars. Further, the recession-induced auto production slump reduced new car leases, a principle source of used cars. As you would expect, the biggest price hikes have occurred in the compact and midsize sector, 18 and 13 percent respectively.

The good news: if you want to buy a new car and currently own one, its trade-in value is at an historic high. Dealers are hungry for used cars and there are good deals out there. Without a trade-in the high price for used cars may make a new car purchase more economically palatable.

- - -

Write to

© 2011 All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

  • Discuss
  • Print

Comments » 0

Be the first to post a comment!

Share your thoughts

Comments are the sole responsibility of the person posting them. You agree not to post comments that are off topic, defamatory, obscene, abusive, threatening or an invasion of privacy. Violators may be banned. Click here for our full user agreement.

Comments can be shared on Facebook and Yahoo!. Add both options by connecting your profiles.