The Smoking Hot Market for ‘Gently-Used’ Cars

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Are you in the market for a fuel-efficient used car? Then you probably have competition—not just from other drivers, but from car dealerships.

The auto industry had a strong year of new-auto sales in 2012, and another huge year for car purchases is expected for 2013. Forecasts call for more than 15 million new-car purchases in the U.S. this year, up slightly from 2012 and a sharp rise compared to the 10.5 million new vehicles sold in 2009.

Rising new-car sales generally mean an increased inventory of used cars, thanks to trade-ins. Yet as the Wall Street Journal reported recently, there don’t seem to be nearly enough “gently used” cars around to keep up with marketplace demand. Dealerships have resorted to stalking Craigslist for owners interested in unloading used cars—especially those that are just a few years old. Used-car lot managers are paying good money for these secondhand wheels due to confidence that they’ll still be able to flip them quickly at a profit.

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There are many reasons why there’s something of a shortage of used cars right now. Owners are hanging onto cars longer than ever not only because it’s obviously cheaper than upgrading to a new model, but because automobiles purchased over the last decade or so were built to last for at least 100,000 miles, and often upwards of 200K miles. Because the number of new-car sales dipped during the recession years, there are fewer vehicles than usual that are two or four years old right now. The government’s Cash for Clunkers program also took many used vehicles off the road a few years back.

There’s also just plain enormous demand for used vehicles, as the WSJ pointed out:

While new vehicle sales get a lot of attention because of their connection to auto makers, the used vehicle market is far larger. Last year, U.S. used vehicle sales rose 5% to 40.5 million.

Add all of that up and we’ve got a situation with a high demand and low supply of used cars, at least for the time being. Bizarrely, the situation is also one in which, as Kelley Blue Book noted, new and used versions of the same car model sometimes cost about the same, once dealership incentives for new vehicles are factored in. “Buying a one-year-old used Toyota Corolla or Honda Civic will only save consumers about $20 per month,” the experts at KBB estimate. Meanwhile, “Buyers interested in the Toyota RAV4 or Chevrolet Equinox will find just a $20 gap between new- and used-vehicle payments, while a brand-new Ford Escape commands a more sizable $60 per month premium from the slightly used variant.”

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What’s interesting is that while used-car prices are fairly high nationwide, costs can vary quite a bit from region to region. The New York Times and others highlighted research by, which indicated that used-car prices tended to be more expensive in mid-size cities with less dealership competition, such as Jackson, Miss., and Montgomery, Ala. Prices are generally cheaper in larger urban areas like Cleveland and Miami.

A Sun Sentinel article “boasted” that South Florida had the country’s least expensive used cars—running 7% less than the national average. Why are prices so cheap? “We have a large older population,” one economist explained, and as they pass away or stop driving, their cars flood the marketplace, driving prices down.

Jorge Salazar-Carrillo, an economics professor at Florida International University, also said that South Florida’s showy culture plays a role:

“It’s that kind of environment,” he said. “You have to show how well you are doing. Most people are never going to see the house you live in and so many people are trying to impress others by the kind of car they are driving.”

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The more likely drivers are to want to impress neighbors and business associates, the more likely they are to upgrade their cars regularly—and, of course, to trade in their old cars. Dealerships in the region report that the market’s cheap used-car prices are attracting buyers from as far away as Texas and Alaska.