Used-Car Prices Zooming: Supply and Demand at Work

2007 Cadillac Escalade

If you think about this lousy economy and its side effects, it’s not hard to understand why used-car buyers have driven up average prices this year by over 10 percent. Some high-demand cars like the Cadillac Escalade are showing a near-36-percent increase. Yes, they want them!

Why is this happening? Basically, “it’s the economy, stupid.”

Over the last year, many folks delayed purchasing big-ticket items, so there is a lot of pent-up demand. Others are now buying used rather than new because of high new-car prices. Who wants (or can afford) to sink a lot of capital into a new car when there is such a general lack of confidence in the economy? So used cars have become the default option.

Finally, as a consequence of these factors, demand is outstripping supply. Cash for Clunkers also took away a chunk of the old-used-car inventory. And there are fewer cars coming off lease or being traded.

In Fort Wayne, Indiana, for example, used-car dealer Brian Straley noted that:

We typically buy from local dealers, but they’re not getting as many trades because they’re not selling cars. …When we go to the auctions, the SUVs, trucks and vehicles with third rows have gone up $800 to $2,500.

A lot of dealers have been complaining about the high wholesale cost of cars they buy at auction. Many have felt they simply couldn’t pass along these higher prices to the consumer.

As auction supplies diminish, most dealers have no choice but to raise retail prices, though some fear that doing so may lose them customers. Still, it appears that used-car sales will have risen nearly 5 percent in August.

What does this mean for you, the cash-strapped buyer? I think there are three major caveats to keep in mind: Research well, stick to your budget, and maybe settle for something less.

As we have said before, one of your best tools is on this very website, and that is CarGurus’ DealFinder. It gives you a birds-eye view of the market—locally and nationally—and helps you find the best local deals on whatever car you want to purchase.

Have you used CarGurus’ DealFinder to research or buy a car?

—jgoods

Find Used Cars in Your Area at CarGurus

Used Cadillac Escalade

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