Our Used Car’s Value Has Increased Significantly. Why?

by Kevin on August 4, 2011

I sit down and do my family’s budget at least once per week. Our budget spreadsheet also has a separate tab that tracks our net worth, but I only really look at it about once every month. One of the items that we track is the value of our vehicles. We might not be able to get full blue book value for our cars if we needed to liquidate them to wipe out our liabilities, but tracking their value gives us a general idea of how many assets we have so we can compare that number to our liabilities.

As I was updating our net worth last month, I noticed a peculiar trend: the value of both of our vehicles had increased over the last few months.

But wait, I thought cars only went down in value unless you held onto a classic car for 30+ years? How are my 7 and 9 year old Hondas increasing in value?

Supply and Demand

The only reason I can come up with for the increase in value of our used cars is supply and demand. This spring an unusual number of heavy devastating storms rolled through Alabama and east Tennessee. You saw the horrible images from Tuscaloosa and Joplin. The storm that hit Tuscaloosa eventually rolled through Knoxville and everything south of I-40/75 got hammered with very heavy hail. Thousands of homes, businesses, and vehicles were damaged. There have been construction crews working on homes since then and many aren’t expected to be finished due to a lot of demand and a lack of supply of contractors and supplies.

The same is true for vehicles. When a storm drops golf ball to baseball size hail over a large area, cars don’t just get some dents… they get their windows completed busted out which allows all the rain to destroy the inside of the car. Body shops are full, too. Our real estate agent’s car has a lot of hood and roof damage, and her body shop said they couldn’t get to the car until March of 2012.

As a result, insurance companies have paid out tons of cash to totaled vehicles. The consumers whose vehicles were destroyed have gone out and purchased a large amount of the available inventory in the surrounding area.

It’s a classic example of supply and demand. Demand has skyrocketed unnaturally due to a natural disaster. The marketplace hasn’t adjusted yet due to the poor economy because not as many people are buying new vehicles and selling or trading in their old vehicles. This makes the currently available used vehicles more valuable.

Should We Sell Now?

We have a plan to purchase new vehicles in 2012 and 2014. Our first purchase is about 12 months away, but the vehicle we would be replacing just went up between $1,500 and $2,000. Should we capitalize on that increased value now, before the market readjusts?

We are heavily considering it. Dealerships in our area are hurting both to buy used vehicles and to sell new ones. I have long argued against the purchase of new vehicles, but in the current state of economy I am beginning to wonder if good deals can be had.

What would you do in our situation?

{ 2 comments }

Super Frugalette August 8, 2011 at 1:37 am

Sell the car! The situation has changed and you should act on the new information.

Jenny August 9, 2011 at 4:36 pm

My advice: sell if you can make more for the selling the same car you’d sell in a year — as for purchasing: consider heading out to another state – a state far enough away that you’ll get a super deal and drive it home or put it on the uhaul. Maybe you have family in another part of the USA – or just head out and for a week do some car shopping and throw in a vacation too! Double score!

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