Clunkers program raises cost of used cars

The Cash for Clunkers program boosted new car sales but has also dramatically raised the price of inexpensive used cars, dealers say.

The Car Allowance Rebate System, commonly called Cash for Clunkers, took 690,000 operable cars out of the market, which is beginning to reflect effects of the shortage.

Used-car prices are higher, which hurts the poor, but a smaller supply of used cars will also affect the auto parts market, which lower-income car owners, and hobbyists rely on to keep their older vehicles running.

‘Prices are up and there is definitely a shortage of used cars,’ said Greg Peeples, general manager of Leigh Automotive, the Mercedes-Benz dealership in Tuscaloosa.

Peeples said that because so many new cars were sold in Cash for Clunkers and are only slowly being replaced, dealers needing more used cars are finding fewer of them, and at higher prices, car hire and van hire agencies that relied on a flowing market are now having trouble, during a time of year when models change and used car prices usually go down.

Ronnie Watkins, a Ford dealer in Gadsden, said he told his car buyers not to bother attending a recent auction for used cars because prices have gone up.

‘I bought 20 Ford Fusions from a wholesaler about 3 weeks ago,’ Watkins said. ‘This car has now gone up over $1,000. ‘What is going to happen at this dealership and dealerships throughout the country is used cars are in short supply by taking 700,000 out of circulation. It takes away from the ‘buy here and pay here’ lots.’

Cash for Clunkers promised incentives of up to $4,500 per car for new car dealers who took older, less fuel- efficient cars as trade-ins for more fuel-efficient vehicles. The trade-ins are destroyed even if they’re drivable.

Many of the trade-ins were 10-year-old or older sport utility vehicles that still had a couple of years of service left in them, and could have been bought for a couple thousand dollars.

Barry Buckner, owner of Tuscaloosa Hyundai, said he’s noticed something else — the shortage of both new and used cars is allowing manufacturers to charge more for their program cars, which are sold as nearly new.

‘I sold almost all my inventory, but on the other side of that, some dealers didn’t take their allocations and they’re forced to buy used cars so they have something to sell,’ he said. ‘This drives up the price. For July and August, the representatives from Hyundai told us they raised the floor of the amount they’ll take for a car under auction and they raised the floors knowing dealers will have to pay.’