Wednesday, June 22, 2011

It's Definitely Sucking

The used car market is a mess. People are driving their cars longer and looking for economical used car. Gas prices have created a mental shift for many people, myself included. I've got a mental benchmark of what good gas mileage is now, and it's significantly higher than it was five years ago. This is driving up the price of economical cars, while cars that don't fit that description are ignored.

Normally you have a book value for your car, an amalgamation of Kelley Blue Book, NADA and Edmunds. Then you have the private party resale value or trade in price. Usually there's a reasonable spread for these two numbers. For example, my wife's Scion is valued at $6k and would normally retail for $9k. However, in the booming used car market, her $6k car is actually selling for $11-12k. Meanwhile, my non-economy Mazda 6 has a book value of around $7k and theoretically sells for $9k, but isn't economical, so it languishes.

So yes, there are great deals on new cars. Volkswagen offers 1.9% financing for up to 5 years and they're negotiating like mad to move cars, even at below invoice pricing. At least that's true with a car like the GTI. If you want a TDI, there's far less negotiating power due to demand and limited supply (it's hugely economical). The problem is, if you have a used car, you're either really happy to drive it until the wheels fall off if it's economical (my wife's car) or you have trouble selling it (my car). The dealers are happy to take trade ins, but you'll take a bath and suddenly that low invoice pricing and cheap money is awfully expensive looking as your down payment evaporates.

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