Wednesday, August 25, 2010

Cash for Clunkers = Sky high prices a year later

Here’s another one you could see coming a year away. 

With home prices falling, fewer people employed, and every economic indicator on the dashboard flashing red, deflation has started to become a big enough worry that the Fed has adjusted its monetary policy to account for it.  There are no such worries in the used-car industry, however.  Prices have jumped 10% overall and in some cases as much as a third for used cars, thanks not to demand as much as a restricted supply after the government destroyed billions of dollars in assets as part of its Cash for Clunkers program last year (via Instapundit):

This is something I can personally relate to.  Two years ago, I bought my then 16-year old a 2004 Saturn L300.  I paid $6,000 cash for a car that was in “extra clean” condition.  It had one owner, and just below average miles.  I got a great deal, she got a great car.

But as a typical teenager, she had a propensity to bump into things.  A telephone pole knocked off the passenger rear-view.  She backed into my Silverado.  And then, when stopping suddenly for another car pulling in front of her, her car was rear-ended and was a total loss.  The insurance company settled for $4,600, which was about right considering we had a $500 deductible. 

So, I take the $4,600 shopping for another car, and there was another 2004 L300 on the lot.  Different color, higher miles, and in very good (not extra clean) condition.  The no-haggle price?  $6,500.  This is after two years of depreciation, and for a vehicle with higher miles and not as well maintained.  I sucked it up and paid the difference—the L300 is a nice, safe care for teenagers, but as soon as I heard the price, the first thought in my mind was:

“Gee thanks, Mr. President.  You just cost me $1,900.

Gimme some feedback in the comments.