Why Are Used Car Prices On the Rise?

Three years after the financial crisis hit, used car buyers are going to feel the effects as it becomes harder to find the models they want, and they’ll be paying more money for higher mileage vehicles. That’s because a key supply of late model used cars comes from vehicles that were on a three-year lease, and counting back three years puts one right at the center of a financial crisis that severely decreased new leases in the summer of 2008, down 58% between June and November of that year.

And with automakers struggling to stay afloat, and financing needed for new leases drying up, automakers like Ford (NYSE:F) cut back on the number of leases they were writing while others, namely General Motors (NYSE:GM) and Chrysler Group, essentially stopped leasing altogether.

The price of used cars has already been on the climb in recent years, with the Manheim used car index hitting a record high in May that was 30% above the low hit in December 2008. Now this summer, used car prices could approach new car prices as demand continues to rise while supply dwindles. However, the prices of new cars will set a cap on used car prices that should be significantly lower than their newer counterparts, given that, once a used vehicle reaches a certain price, it might just be worth the little extra to get the brand new car. Still, the decreased supply of new cars after supply chain interruptions from the Japanese earthquake might make it harder to find the new car you want. Plus, prices of new cars have also been lifted as a result of increased production and material costs this year.

But like most seemingly bad news, there are always those who will profit. Many dealers are offering to buy people out of leases early in order to replenish their supply of used vehicles. And consumers with leases that are about to run out will be able to buy the vehicle at the price listed in their contract and then turn around and sell it for more money.