There are a combination of factors affecting supply and demand:
• People are holding on to their cars and driving them about a year longer than they did prior to the recession. The average car on the road is now pegged at 10.6 years.
• New car sales have been down over the past few years as consumers held off on major purchases, resulting in fewer late-model used cars available for resale.
• When it got harder to get credit during the financial crisis, leasing went down. Leased cars ultimately end up being used cars, so now there are fewer in the pipeline. This makes perfect sense if you backtrack and realize that vehicles leased in 2008 for three years would be heading for used-car lots right about now.
• Rental car companies have not been buying and turning over as many new cars in recent past.
• New models of some small cars are also in short supply because of the tragic events in Japan. Short-term, dealers are buying used vehicles as placeholders.
This all adds up to a net decrease in supply and fewer used cars on lots.
The Smaller, the Better
Used car prices are up across the board, but with gas prices still high, smaller vehicles and hybrids are in particular demand. A CarMax (KMX) dealer told me they can barely keep them on the lot.
The expectation is that used car prices will level off in the coming months and may drop in 2012 and beyond as more used vehicles come on the market. If this is a bubble, now may really be the time to unload. I connected with colleague and renowned auto industry expert David Kiley. He says the best possible move you could make right now is to sell or trade in a small, full efficient car if you have one to sell. You'll get top dollar for that. Then, buy, if this is your need, a minivan, SUV or pick-up truck -- vehicles that are still getting generous incentives.
Online Resources: KBB.com, Edmunds.com, Best Used Cars Under $10k, Best Used Cars for Teens
Video: Sell Your Car for More Than It's Worth