Baby you can drive my car

by Doctor Science

Sorry about the lack of posting, gang. In addition to doing a lot of that "work" thing, I've been shopping for a used car. I don't know if anyone predicted, back in 1996 or so, how much that old-school business would change in the next ten years. Now, although buying a used car is still a pain in the butt, it's not a *nightmarish* one.

Cadillac Ranch. I hadn't realized that the cars are normally covered with colorful graffiti, as a kind of ongoing public art project.

.

I was able to:

1. use consumer reports and other resources to figure out what makes/models we wanted to consider
2. search for a car on craigslist (we couldn't afford more than $6K, so most dealers were out)
3. screen out the obvious frauds (soooo many of them)
4. email sellers to ask for VINs -- anyone who wouldn't give a VIN was someone we didn't want to deal with
5. look up the VIN on Carfax and get the car's history
6. get estimated prices from edmunds.com and kbb.com
7. make appointments to see cars and communicate with seller about various issues

-- all online. The only step that hasn't changed is looking at the cars and test-driving.

The most obvious effect of the Internet on the used-car-buying process has been that Craigslist has basically killed newspaper classifieds -- taking out most of newspaper profitability as collateral damage.

But from my POV as a buyer, the availability of price guides and Carfax is even more crucial. (Crucialer? Why don't we say crucialer?)

The first used car we bought in the online era was in about 1998. I found it using a since-outmoded online newspaper classifieds-aggregator: very similar to what one now gets with craigslist, only without as many spammers and liars. This was very handy, but what was *really* revolutionary was that both the seller and I had independently gone to edmunds.com and got an estimated price. So what I had in mind and what he had in mind was the same number, and we could come to an agreement without a whole lot of nerve-wracking dickering and worrying about being cheated.

Bargaining for a Horse by William Sidney Mount (1835). In looking for more information about this picture, I came across this partial description:

Mount's first mature painting ... also one of his first to depict a Yankee ...

Who is the "Yankee", here? Both of the men? Or is the man in the yellow vest supposed to be a city slicker, trying to buy the horse off the Yankee in the red vest?

Now it's even easier, because Carfax is online and reasonably priced. It's now easy for me to spot the cars that have been totaled at a distance -- I don't even have to consider looking at a car that's got major problems. It's still amazing that a used car dealer would print out a Carfax report, hand it to us, then tell us to our faces that the dent in the bumper was "just falling ice" when we can look down at the paper and see *three* rear-end collisions in the last 2 years. But I guess lying just got to be a habit with them ...

One thing I wonder about is how this all is affecting used car prices. Back in 1998, only edmunds.com was readily available IIRC. Nowadays I can also check on kbb.com, where the prices are higher -- people say that's because kbb is aimed at dealers, who always want more for the cars. In this last round of research I noticed that most of the asking prices on craigslist in for-sale-by-owner seemed to be from kbb, and there wasn't as much spread between dealer and private party prices as I'd expect.

With the internet, the market in used cars is much freer because there's a less overwhelming information asymmetry between buyer and seller -- but I don't know that it's made a real difference in prices:

From the Consumer Price Index.

As you can see, used car prices are really volatile, so it's hard for me to see an effect of new technologies. Perhaps a longer time series would be more helpful.

In conclusion:

On YouTube

Oh come on, you knew I *had* to use that song. I chose this version because I like watching someone else work.

Comments

[Srsly?]

As you can see, used car prices are really volatile, so it's hard for me to see an effect of new technologies.

You speculate about the impact of technology and post that chart but don’t comment on the most striking feature of the chart: the 25% increase in used car prices starting partway through 2009…

Wonder what happened in mid-2009 that might have impacted the price of used cars? Almost seems like it could have been one of those unintended consequences of some poorly thought out government program. Wonder what it could have been?

[Doctor Science]

Srsly? -- you're willfully mis-reading the chart. The swing begins in 2008, when the *economy collapsed*. Remember that? Bush was still President, kind of thing?

First effect seems to be: drop in used car prices, as people try not to spend more than they absolutely have to.

Then: swing upward, as people who've postponed buying a car come to the point where they absolutely have to, but they can't afford a new car. So used cars go up in price, because they're always cheaper in absolute terms than new cars.

Also note the very similar pattern but with lower amplitude in 2003-05.

[Geoduck]

Re the picture. You look at the hat that yellow-vest is wearing, and you have to ask who the slicker is here?

[CharlesWT]

So, disappearing over half a million vehicles didn't have any affect?

[Doctor Science]

CharlesWT:

I'm not sure it had as significant an effect as you'd expect. Look at the bouncing around in 2003-05, which had the same basic shape as that in 2008-10 but lower amplitude. Both periods had increased unemployment, but the current recession is much, much worse.

Basically, this is exactly the pattern suggested if unemployment and other recession factors are driving used car prices, and Cash for Clunkers had almost no effect.

That's why I said I'd be interested in a longer time-series, to see if this is a general pattern in all recessions.

[Chuchundra]

The half million vehicles were just a drop in the bucket, even assuming that they were all salable, drivable vehicles. Given the payout limits, most of those cars would have been fairly old cars near the end of their life cycle.

The fact is that since the start of the recession, there has been a deficit of over 16 million new car sales. That was the last time I looked. It may be more now.

That's 16 million fewer used vehicles being turned in and re-sold, not mention more people looking to buy used instead of new due to the economy.

Supply. Demand. You do the math.

When I was looking to buy a cheap used car as a second vehicle back in late 2008, I ended up buying new instead because there were better deals to be had.

I'd advise anyone thinking about buying a used car to seriously consider something new instead. There are great deals to be had and interest rates are very very low. Unless you have issues with credit or car insurance, it may very well be the best use of your money.

[liberal japonicus]

Interesting stuff. Here in Japan, there is something called a shaken, which is a combination of inspection/required insurance. The whole process acts to keep the used car market much smaller and more expensive than the US. Of course, this is only possible because Japan has an extensive public transportation network, so having a car is not the necessity it often is in the states.

[Chuchundra]

I remember reading some time ago that it's prohibitively expensive to keep a used car older than 10 years in Japan and that Japan ships a lot of these older, pre-owned vehicles to other countries for re-sale.

[liberal japonicus]

Very true Chuchundra. Russia has put an import duty on used cars, but 15 years ago, you used to see these rusty freighters packed to the brim with used cars up in Hokkaido, in the port of Otaru. I'm sure the trade is still going on, and these pics are a good example of an capsized ship that was overloaded with used Japanese cars, though all these cars look in good nick. In the old days, when there was no import tax, they would take any old beater and strap it, cause the parts would be worth a huge amount