You may or may not know about the common wisdom regarding used car purchases: “Don’t buy while gas prices are high.” And sure enough, as gas prices go up, so do used car prices. But why? And how can you make this work to your advantage?
There are two reasons used car prices go up when gas prices go up, one economic and the other psychological.
The Economic Issue
This is fairly straightforward: a lot of us are driving cars that are old. Very old. The average age of the American car is a smidge more than a decade, and as quality of cars sold improves and prices for new cars stay up, people tend to cling to their vehicles longer. The rough economy of late really hasn’t helped things: most people, if they’re buying a car, are looking for a used car because, hey, it’s cheaper.
But a car from 10 years ago is a total gas hog compared to newer versions. For example, even the gas-guzzling Cadillac Escalade had an MPG of 13 city and 17 highway in 2002, and a decade later, that’s improved. Not much: a 2011 Escalade gets 14 city and 18 highway. But it’s still an improvement, and you’ll feel that missing mile or so in your wallet a lot more over the life of the car.
So, especially when gas prices are high, people are looking to trade in their older car for something newer that gets at least somewhat better mileage. Needless to say, the most fuel-efficient cars see the highest demand, especially late model sedans and smaller cars.
The Psychological Issue
The psychological aspect is a bit more difficult to explain, although all it really takes is a moment to stop and think about it. Most people have a car payment as a monthly expense, but filling up the tank happens at least once a week, maybe two or three times a week. The road warriors among us might be at the pump every single day.
And, realistically, it doesn’t take long for you to start looking at your receipts from the gas station and start thinking, “Geez, a lot of my paycheck goes straight into the gas tank. I need to do something about that.” And, if gas goes up substantially like it did earlier in the year, it’s going to weigh a lot more on your mind, especially if you think you can get a payment close to your current one and save on gas. Furthermore, newer cars tend to have lower auto insurance costs, which can be an added incentive.
Ever wonder why used car lots tend to have gas stations nearby? Now you know.
Using This Information to Your Advantage
So, how do you make all of this work in your favor?
- If you’re buying a used car, keep an eye on gas prices and wait. Remember, there are a quarter billion cars on the road right now. Demand might be high for the car you want, but you can probably wait.
- If you need a new car, don’t think the price is locked in; haggle. After all, that salesman will never know when gas prices will start to sink.
- If you’re selling, keep a close eye on prices; and more importantly, what used car lots are charging for your car versus what they’re offering you. You have some leverage, after all. The sooner they get your car, the sooner they can sell it, so you can use that to your advantage.