Large, Used SUV and Truck Prices Reach All-Time Highs in Wake of Cash for Clunkers Program

If you’re in the market for a good used car, you may find the selection a bit picked-over. If the used vehicle you’re in the market for happens to be a full-size SUV or pickup or other body style priced under $4,500, you can pretty much scratch new car dealerships off your list.

Last summer’s Cash for Clunkers program which required dealerships to scrap all such trade-in vehicles has created a severe shortage that is being felt beyond the used car lots of new auto dealerships. Most small used car and truck dealerships who were prohibited from participating in the program are also feeling the squeeze that deprived them of inventory. Many consumers who might otherwise have purchased a used vehicle found the government incentives of up to $4,500 irresistible and opted, instead, for a new car or truck. Because the program required new car dealers to disable and then crush all trade-ins they received through the program, fewer used vehicles are available at auction, and prices have been driven up due to the short supply. In fact, used car prices have reached an all time high.

The Manheim Index, a monthly barometer of the used car industry that tracks wholesale auction prices in the U.S., rose by 6.9% in September. The index was created in 1995 with an assigned, baseline value of 100. In September it rose to 118.5.

In addition to measuring wholesale values of trade-in vehicles sold at auction, the index also parallels retail used vehicle prices – those found on used car lots across the country. According to a recent study, used vehicle sales in 2008 totaled 36.5 million units compared to only 13.2 million new vehicle sales.

Paul Harpole is the general sales manager for John Chandler Ford, Inc. of Amarillo, Texas. As is the case with most new car dealerships, he says that trade-ins make up the largest percentage of pre-owned vehicles for the dealership. Since the Cash for Clunkers program, however, Harpole says, “There’s just hardly any cars left under $4,500.”

In Amarillo, the Cash for Clunkers program resulted in about a 35% increase in new vehicle sales while it lasted. In a recent issue of Amarillo National Bank’s monthly newsletter, Amarillo Economic Analysis, local new car dealers sold a total of 845 new cars and trucks during July. In August, when the federal rebate program was in full swing, that number jumped to 1,140 units sold.

For owners of used SUVs and full-size pickups who missed the chance to receive up to $4,500 in Clunker rebates, there’s good news. In many cases, the reduced supply combined with relative stability in oil prices has made it possible for them to demand considerably more in trade-in allowances than they would have received under the Cash for Clunkers program.

According to salesman George Jennings of Bobby Duby Motors in Amarillo, the used car market has been “very, very high this entire year.” Jennings said, “Customers that bought those vehicles a year ago and have since traded them in made money on them, which is just unheard of. How can you buy a used car, drive it for a year, sell it and make money?” As an example, he said a 2007 Chevy Tahoe bought for $23,000 last year could receive a trade-in allowance of that amount or more in today’s used-car market.

Jennings also claims that the lack of supply in the SUV sector has resulted in higher prices being paid for used SUVs. The shortage of new SUVs, he claims, is a result of the drain created by Cash for Clunkers combined with automaker’s shifting toward producing more small vehicles. Toyota, he says, has reduced their production of larger, less fuel efficient Tundras and Sequoias in favor of higher production volumes of small vehicles including the Prius gas-electric hybrid.

Industry-wide new car production in 2009 is expected to top out at around 10 million to 11 million units in order to bolster prices.

Although the debate over the merits and effects of the Cash for Clunkers program will no doubt rage on for many years to come, George Jennings’ assessment of the current predicament is both succinct and irrefutable. He says, “There are not enough used cars in the market now because there are not enough new car sales.”

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