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What Effect Did The Recession Have On Used Car Sales?

From 2000 to 2007, the number of used cars sold in the United States was fairly stable; around 40 – 42 million. That's nearly 15% of the US population selling a used car.

In 2008, the number dropped to 36 million. It came back up to 40 million in 2012, but still hasn’t returned to pre-2007 levels. However, it’s slowly and steadily on the rise and looking to continue on that trajectory.

The Great Recession

In order to understand the explanation for this, it’s important to consider the recession that began in late-2007 and ended in mid-2009. Consumer spending and economic output fell drastically. This caused the unemployment rate to increase from 5% to 10% as mass layoffs occurred. Many considered it the worst recession since the Great Depression of the 1930s. The impact was felt in many industries and sectors around the world, hitting families and individuals alike. The recession had particularly large impacts on durable goods, such as homes and cars.

People Held on to Used Cars Longer

With higher unemployment rates, many people didn’t have the income to purchase a new or used vehicle. Even those who stayed employed worried about potential layoffs, so they saved more and cut purchases. It’s difficult for many individuals to justify making a large purchase in this kind of volatile economic climate.

Additionally, many families had one parent laid off, so they had to cope with lower income levels than they were accustomed to. Even when both parents were employed, families chose to drive their old vehicle due to the lower insurance rates, registration costs and ducking a monthly car payment.

The real estate market was hit especially hard by the recession. This led to decreased net wealth for many families, since their home was one of the main, or only major asset they owned. Others fell behind on payments which directly hurt their credit score; this is a key metric used to finance cars and other goods. Lower wealth can decrease access to credit as well. When people’s income recovered, saving up for the down payment on a new home became a higher priority than buying a car.

Impact on the Car Market 

recession-timelineThe recession was a major factor in the downturn of the used car market, but there are other elements at play. Cars get better each year, which means that used cards don’t need to be traded in as often. Some people are able to drive their used cars until they have 200,000 or more miles. Similarly, rust protection innovations in recent years have helped car frames remain rust-free. This translates into some older cars still looking great, which offers the driver another reason to hold on to their prized possession.

Many manufacturers have also increased the lifetime of their warranties. It used to be unheard of to get a 10-year, 100,000 mile warranty on a car, but now they are common place. Many car owners will continue driving their used car as long as it’s under warranty because it offers safety and risk protection. This is especially true during a recession, where everyone feels that added uncertainty about their future income. They worry about losing a job or having their hours cut.

All of these factors have impacted the used car market, but the recession is by far the biggest factor. When the recession ended in 2009 (even though we still feel it today in 2014), used car sales slowly started to recover. They’re back to the 40 to 42 million range, but we probably won’t see them reach the 2005 peak of 44 million for a while.

How did the recession impact you? Did you decide to hold on to your used car due to the economy?

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