Aren't dealers also jacking up the prices of used cars on their lots?

Scarcity pushes used car prices up
Even SUVs and pickups command top dollar from eager dealers
Written by
JONATHAN STARKEY

Tired of your car? Now may be the perfect time to get rid of it.

An economic recovery, however tepid, and a shortage of used cars means that dealers may offer top dollar for that clunker in your driveway.

Perhaps surprisingly, an odometer reading north of 100,000 is not a deal-breaker. But scratches and dents don't help.

Despite Delaware gas prices around $3.60 a gallon, even SUVs and pickup trucks are commanding higher prices.

According to data from the National Automobile Dealers Association, the average wholesale price of a used SUV is 11 percent more than it was just six months ago.

Small car prices are up between 21 percent and 31 percent, with the value of the tiniest models up the most.

The answer to why prices are surging is clear, according to economists and dealers. "Supply and demand," said Bill Willis, president of Willis Chevrolet in Smryna. "It's Economics 101."

During the recession, average new car sales per year fell from more than 16 million, to less than 11 million. Fewer new car sales meant fewer trade-ins, which has caused a shortage of used cars on dealers' lots, said Paul Taylor, NADA's chief economist.

That's even increased demand for types of cars that have typically been considered worthless on the market.

"At the auction, we're seeing higher-mileage cars," said Ray Nichols, owner of Bel Air, Md.-based BSC America, which operates auto auctions in Maryland and Florida, where dealers buy and sell cars.

"You used to never see a car with 150,000 200,000 miles," Nichols said. "But they're absolutely built better and last longer."

Consumers can look up their used car's value online at sites like nadaguides.com, which is operated by NADA. Kelley Blue Book's site, kbb.com, and Edmunds.com are also helpful, experts say.

Taylor said high prices "should persist as long as the economy continues to grow." Manufacturers are squeezing incentives this summer to beef up profit margins.

Of course, a natural question may be, how much of a benefit are the higher prices for car consumers? Aren't dealers also jacking up the prices of used cars on their lots?

Taylor said yes, but suggests that deals might be found in new cars and leases.

According to the auto industry site Edmunds.com, incentives for new cars -- such as cash back offers and ultra-low interest rates -- fell to their lowest level since 2005 last month. But, per car sold, incentives remain above $2,000.

That's helping close the cost spread between new and used cars, Taylor said.

Manufacturers are also looking to short-term leases as a tool to re-stock used car inventories for certified pre-owned programs, Taylor said.

Taylor said customers may get a good deal by cashing in their old car, and snapping up a new car on short-term lease.

"The interesting thing for customers is they have a much greater amount of trade equity than they might have had a year ago on the very same car or truck," Taylor said.

And with gas prices moderating, the value of trucks and SUVs, not just small cars, is likely to remain high for some time, Taylor added.

But, he said, "gas prices are much less a factor than this shortage of supply."