Cash for Clunkers: Here Comes the Hangover

"Cash for clunkers" might have "juiced up" new vehicle sales and provided some initial and temporary stimulus to the economy, but there are some secondary costs now surfacing in the "hangover" period:

1. Shortage of cheap used vehicles and rising prices (see chart above).

In his 20 years in the business, salesman Mark Sauer has never had a tougher time finding inexpensive used cars. "It's never been this bad," said Sauer, buyer and sales manager of Vaccaro's Auto Buyers of Reading, PA. "Customers used to be able to find a good car for their son or daughter to take to college for $2,000 or $3,000, but now that same car may cost $5,000," said another dealer. "It's sad."

2. Some small car dealers are now going out of business.

Having the toughest time, though, are smaller dealers who focus on vehicles in the low-price to midprice range, and some have closed as a result, according to the Pennsylvania Independent Automobile Dealers Association.

3. Financing issues resulting from the rising prices.

Another problem is that used-vehicle prices have quickly risen above their book values, making it tougher for customers to secure financing.

Comments

[jeremiah74:]

interesesting case study, how govt. intervention can create a floor for prices above where supply and demand would intersect. it benefits some, as it did in the cash for clunkers case, but not without later repercussions.

Nov 02 12:20 PM

[logicalthought:]

Wow... Only the government could possibly make me feel sorry for used car dealers!

Nov 02 12:37 PM

[Tony Petroski:]

This article doesn't meet the smell test.

I suspect you can find a car for your son or daughter in the $2000-3000 range and if not, contact me.

Cash for clunkers was a stupendously bad idea and unconstitutional and all that, and Mr. Perry is a good man who is an optimist, but...

Nov 02 03:38 PM

[GrantR:]

But shouldn't used car prices fall soon? All the decent looking used cars that were traded-in during the "cas for clunkers" program are sitting in lots increasing supply (lowering prices).
With that sudden spike caused by "cash for clunkers" shown on the chart, it seems to me that used cars are over-valued and consumers will soon realize that, also causing used car prices to fall.

Nov 02 04:56 PM

[Paco6945:]

Cars that were traded in under the Cash for Clunkers program had to be destroyed -- so they are not sitting in used car lots.

Nov 03 10:57 AM

[Dwight from...:]

The commen it correct; the law of supply and demand will soon correct for shortages, just as it does for an abundance of a product. Unless the government does something again, of course.


On Nov 02 04:56 PM GrantR wrote:

> But shouldn't used car prices fall soon? All the decent looking used
> cars that were traded-in during the "cas for clunkers" program are
> sitting in lots increasing supply (lowering prices).
> With that sudden spike caused by "cash for clunkers" shown on the
> chart, it seems to me that used cars are over-valued and consumers
> will soon realize that, also causing used car prices to fall.

Nov 03 11:16 PM