Good Cars Are Harder To Find

For many years, the used vehicle market took care of supplying "econoboxes" to anyone who wanted a cheap car. However, as gas prices have become more volatile, auto resale prices have started to fluctuate. As you can see from the chart above, high gas prices put a premium on compact cars so that their resale prices eclipse those of mid-sized cars. SUV prices, meanwhile, fall dramatically when gas prices rise. Curiously, SUV prices rise when gas prices fall.

Buying a fuel efficient car is no longer as simple as choosing the cheapest thing on the lot. Through a cruel trick of the market, these days the cheaper vehicles may also be less efficient. Ten years ago, a working household may have been able to easily purchase an efficient used car for a long commute, but today (as the data in Chapter 5 showed) they may end up with a less efficient car.

This report started with the question of whether consumers could hear the "price signal" of high gas prices. This graph shows how gasoline price signals ricochet through the economy, creating a lot of confusing noise. It's hard for consumers to sort out these choices to reduce their transit spending in an economically rational way. For those buying new cars, auto makers have offered large rebates for inefficient vehicles that significantly offset the difference in fuel costs between the more and less efficient cars. If a driver assumes that the price of gas is likely to fall these rebates can make an inefficient vehicle appear to be a rational choice.

Access to credit is another factor that limits workers' choice of vehicles and increases the cost of transportation through high finance fees. Some people we interviewed said that when their car breaks down and is beyond repair, they find a car on Craigslist or through a private seller, and buy it with cash. Others, who don't have cash on hand, are likely to go to a used car lot--sometimes called Buy Here, Pay Here--to buy a car on credit. Sometimes these lots charge interest rates of as much as 30 percent, and sell cars with inflated prices. They predict that 30 percent of customers will default on their loans--meaning that many households lose whatever equity they have put into the car.

In 2009, the federal government ran a program called Cash For Clunkers that offered rebates for households who turned in gas guzzlers and bought more efficient vehicles. Cash for Clunkers rebates were effective in stimulating auto sales and increasing employment but they were a net drain on the Treasury and they did not help households who lacked the access to credit to buy a new car. A cheaper alternative stimulus program would be to offer low-cost loans to households to buy compact cars with high fuel efficiency.

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