Cash for Clunkers to Cause Used-Car-Value Bubble

PR Newswire, August 7, 2009

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August Kelley Blue Book Market Report Offers Forecast of Used-Car Industry After Cash for Clunkers

IRVINE, Calif., Aug. 7 /PRNewswire/ -- Kelley Blue Book, http://www.kbb.com/, the leading provider of new car and used car information, today reveals possible effects of the Cash for Clunkers program on the used-car industry as reported in the company's August 2009 Blue Book Market Report. As dealers and consumers continue to take advantage of this program, Kelley Blue Book analysts forecast a likely bubble in used-car values, which could deflate as the Cash for Clunkers program comes to a close.

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With $1 billion spent and more than 250,000 new vehicles sold, the success of the Cash for Clunkers program cannot be argued. With more than 250,000 vehicles leaving the used-vehicle supply, this equates to a 0.8 percent reduction in the overall supply of used vehicles (based upon sales of 16 million used vehicles in 2008). When the Senate signs off on an additional $2 billion funding for the Cash for Clunkers program later today, it could equate to an additional 500,000 used cars being removed from the overall used-vehicle supply, which is a 2 percent overall reduction in supply this year alone. With a total of 750,000 vehicles being removed from the marketplace, dealers are stocking up on used inventory in anticipation of low supply and high demand. This scenario is driving used-car prices up significantly in the short term, causing a bubble in values that will seriously impact used-vehicle values when the Cash for Clunkers program ends.

"Dealerships have reported increased foot traffic, creating a false sense of automotive market recovery," said Alec Gutierrez, senior analyst of vehicle valuation for Kelley Blue Book. "As a result, dealers are going to auction to restock inventory, driving up used-car values. However, the effect of a supply reduction of this magnitude could have an immense impact on these values in the short-term, exacerbating the already-limited supply at auction. If this bubble comes to pass, dealerships will end up with excess inventory of both new and used vehicles and be forced to offer deep discounts to remove surplus inventory, driving values down. Ultimately, there will be the possibility of a contraction in auto sales as soon as the Cash for Clunkers program runs out of funding."

WHY I NEED ABS?

The four-wheel ABS or Anti-lock Braking System is designed to help the driver maintain steering control during hard braking, especially in slippery conditions. How it works: Imagine, you are driving a car without ABS on a slippery road (e.g. after a rain or snow). Suddenly, you notice something on the road right in front of you. You hit the brakes, and try to turn aside, but the steering doesn't work; the car just skids out of control. Why, because all the wheels are locked up while you're holding down the brake pedal. As a result, you lose the ability to steer the vehicle.

Braking on the snow without ABS

The four-wheel ABS can help in situations like this. It prevents the wheels from locking up, helping you maintain steering control during braking. In a similar situation, driving a car equipped with four-wheel ABS, it would be easier for you to steer your vehicle while braking.
If slippery road conditions are common in your area, the ABS may be helpful if you use it correctly. The disadvantage is that the ABS is quite complicated device and might be costly to repair.
Essential to know:
- The four-wheel ABS system can help to slightly reduce the braking distance in some situations. However, under certain conditions (e.g. on loose snow or gravel), the braking distance may be longer. The main purpose of four-wheel ABS is to help the driver maintain steering ability during hard braking.

Used Car Informations

For used car buyers: Check our step-by-step used car buying guide. Learn, where to look for a car, how to choose the right one, check our used car reviews. Looking for a used car or SUV with good gas mileage? - check our Top ten used cars/SUVs with good gas mileage. Reading this site may help you to avoid lemons. Find out how to check car history using the VIN number to check for previous accidents or rolled back mileage and what to look for when buying a used car. Check our illustrated guide How to check a used car prior purchase. Have no clue about cars? - no problem, there are many easy-to-understand illustrations and Illustrated Auto Glossary. Check illustrated advice how to check an engine, transmission, car body for previous accidents, etc. This information will help you to negotiate with the salesperson - they take anyone who knows what he or she is looking for more seriously. You can print the used car buyer's checklist and take it with you when looking for a car. Worried about unexpected repairs? Check if anextended warranty is right for you. Find a link to your localDepartment of Motor Vehicle (DMV) website.

For car owners: We also want to help you to understand your car better. Check our car no-starttroubleshooting tips, learn why the "Check engine" or "Service engine soon" light comes on. Find out where you can buy an online repair manual for your car. Check our Car maintenance tipsincluding advice on engine and transmission maintenance. Learn how to take care of a car body, how to remove minor scratches and marks, how to wash and polish the car and how to clean the interior. Planning a car trip? - Check our illustrated long trip car checklist. Interested in selling your car? - check few tips How to sell a car. Want to know what is the difference between OHV and DOHC engine or how the ABS system works or what is the timing belt? - check ourIllustrated Auto Glossary. Want to keep up with latest automotive technology, check ourAutomotive Technology news. Check few tips How to prepare your car for winter. Click the appropriate link on the left.