Market Madness Hits Used Cars

How can this be? Elementary economics informs us that except under unusual circumstances, the value of a commodity declines, not increases, as time goes by. As a vehicle ages, its perceived worth diminishes on a steady, though not necessarily straight, course.

Popularity and Demand
Not always, though. Initial popularity and "supply and demand" dictate valuations that veer away from the norm. Those MINIs cost outlandish sums because they're in high demand, and the supply is limited. Therefore, the person who absolutely must have a MINI or an xB can either wait for a new one to become available, or pay just about as much to drive home a used example right now.


Remember, too, that published new-car prices, provided for comparison purposes, may be misleading. Basic accessories, such as an automatic transmission, may have cost extra when the car was new, but aren't always reflected in the guidebook prices for secondhand models.


Ordinarily, automobiles have followed the economic rules. As was first described decades ago, the moment you drive a new vehicle away from the dealer's lot, it takes the first big hit of depreciation. A massive chunk of value disappears as it's transformed into a used car. After that initial jolt, depreciation proceeds at a more consistent pace. Except for collectible vehicles, which often gain value over the years, most automobiles depreciate in a normal pattern.


At the other end of today's spectrum, rising fuel prices have made big SUVs—especially domestic models—sink fast in value. So, secondhand prices are far below what they would have been under more normal conditions.


Through the summer of 2008, guidebooks have been adjusting their figures up for small cars and way down for full-size SUVs. Automotive Lease Guide (ALG), considered by many to be the final word in residual values, announced dramatic shifts for their next edition. Anticipated worth of a Honda Fit at age 3, for instance, escalated from 46 to 56 percent of its initial price. Chevrolet's subcompact Aveo rose more than 9 percentage points, and the Hyundai Accent gained 8.5 points in ALG's assessment. Ford's Expedition, on the other hand, declined by more than 12 percent in the late-summer ALG guide, followed closely by the Chevrolet Tahoe and Suburban.