According to economist Paul Ballew, the slump in new car sales brought about by the GFC followed by reductions in the production of new cars, has culminated in the current shortage of used cars on the market.
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In particular, record-high prices for luxury cars have led to more new cars being purchased. For example, a 2011 3-Series only costs $34 a month more to finance than a one-year old example.
“There’s a substitution effect going on between new and used,” says Ballew. “When you get those price gaps closing, you get people that are willing to shop new that wouldn’t have before.”
The effect is already being shown in increased demand for new luxury cars withBMW sales rising 13 percent in July, while Mercedes sales increased 7.3 percent.Ford also forecasts a 10 percent increase in new sales over the year.
If the trend continues, it is inevitable that with falling demand for used cars that sellers will drop their prices. However, an Edmunds analyst Joe Spina believes that there won’t be any dramatic decreases in used car prices for at least 18 months.
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