Used-car prices rise, new-car prices fall - so how much is a car really worth?
Analysts cite numerous reasons for this spike: reduced consumer confidence, tight credit, a rise in consumer thrift, even the onset of much-dreaded deflation. But Manheim argues that the most important change is a sharp reduction in new-car sales. With fewer new cars driving off lots, dealers have had fewer trade-ins, which translates into narrower used-car options. Even with the number of repossessed cars steadily rising, the used-car stocks are growing thin.
The price rise is hard to miss. in June the average wholesale cost of a used car broke $10,000 for the first time in a year. These increases, of course, are passed on to customers; caught between high new-car prices and stingy lenders, buyers have had little choice but to accept the high prices.
But another interesting trend has emerged from the shrinking used-car market. With new-car prices and used-car prices rising, the automobile market seems to be seeking equilibrium. Somewhere between overpriced new cars, which magically seem to lose as much as 40 percent of their value when they drive off lots, and underpriced used cars, there seems to be an emergent true price that reflects the actual value of a car.
As the past few months have amply demonstrated, a large portion of an item's value is embedded in the market. It's hard to argue that a house is worth $300,000 if nobody is willing to pay $300,000 for it. But as with homes, the value of cars is tied up in hundreds of factors, some of them unquantifiable. In fact, it would seem that the only mechanism capable of filtering through the endless array of value-based variables is the market.
This emerging pricing, which seems to be somewhat reflective of the practical value of a car, represents a far more hard-eyed mode of valuation than car consumers are used to. Prioritizing economy over extravagance and value over prestige, it suggests that consumers will be less likely to turn up their noses at a gas-sipping hybrid or a clean pre-owned car. It's a thrifty perspective for a practical age.