Used Car Prices Fall for First Time Since 'Cash for Clunkers'

used carEven as overall costs for consumer goods rose 0.1% in September, prices for used cars fell 0.7% during the month, according to data released Friday by the Labor Department.

It was the first used car price drop recorded since just before the federal government's "cash for clunkers" rebate program began in July 2009, according to the Center for Economic and Policy Research.

The program, which offered consumers up to $4,500 if they traded in older, gas guzzling vehicles for new, more fuel efficient ones, was wildly popular with consumers. But because the program required that traded-in cars be scrapped, it had the effect of driving up used-car prices, since it reduced the number of vehicles available for resale -- by about 700,000.

Driven by short supplies, used car prices shot up nearly 20% during the past 17 months, CEPR noted. Despite the rise, however, the cost of previously owned vehicles remains 9.5% below its 2001 peak, it said. (The rapid rise and slower pace of gains in prices resulting from "cash for clunkers" is shown in the graphic below, which does not include September's data.)

So far the decline in used-car prices is limited to just one month of data. But September's drop may signal the end of the tight supply of used cars, and that can be a boon for those who need to replace an aging vehicle but can't afford to purchase a brand-new one.

Monthly Change in Used Vehicle Prices, January 2009 to July 2010 (courtesy Center for Economic and Policy Research):

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