The Sold-by-Owner Used Car Market Crashes—Does Anyone Care?

Well, that headline needs a qualifier.

The sold-by-owner used car market is crashing. Very few people are buying that way, though information about this is being suppressed by not separating person-to-person used vehicle sales from dealer-to-person sales, which are booming. But we get ahead of ourselves.

If you’ve attempted to sell a car lately yourself, you probably already know the score—from the lack of responses (excepting spammers) to your Craig’s List or Auto Trader ad. Especially if you’re asking more than $5,000 for whatever it is you’re selling.

The reason—very few people can scrape together a stack that high.

Back in January (pre-pandemic), Market Watch reported that 74 percent of all salaried workers were living paycheck to paycheck and that three out of ten Americans had zero reserve cash at all. They would need to finance a new refrigerator if their old one croaked.

How are Americans doing now, given tens of millions no longer have a paycheck at all?

Not many folks can well enough scrape together $5,000 in cash—much less $10,000 or more in cash. You cannot buy a used car person-to-person because you actually have to buy it. The “down payment” is the entirety of the payment. The owner isn’t going to let you drive away based on your promise to pay.

And this is the reason fewer and fewer private sales are happening. Much to the manufactured good fortune of used car sellers, including the big chain Carvana, auto resellers specialize in fire-sale purchases of vehicles too pricey for the average-broke- American to pay for at the time of purchase with cash. Used car dealers resell these vehicles on a pay-as-you-go basis, plus interest.

They can acquire these vehicles at the fire-sale price (low trade-in value) from desperate-to-sell-it former owners, who eat the 15-20 percent lopped off what the vehicle is worth on the retail market.

The reseller profits from the sale profit plus interest. Or rather, the re-financer.

The dead-broke-American who can’t scrape together $5k much less $10k or more can scrape together a few hundred bucks for the first monthly payment. Of course, exorbitant interest on the loan amount is discreetly folded into the payment, making it appear invisible and “affordable” to those in denial, the desperate and the innumerate.

In plain language, the least able to afford debt is acquiring more debt.

Cruelly, many of these people would be better advised to buy, that is, finance, a new car, as the interest rates are often significantly lower and the loan itself is usually spread out over longer because there is more “depreciation cushion.”

The new car’s value is much higher to start with than a used car’s, and this means you probably won’t find yourself underwater—owing more on the car than the car is worth.

For just this reason, lenders (who are many things but generally not innumerate) will not write a loan on a used car that’s too-many-months long. They are aware of the underwater issue and know that a not-small number of people caught by that trap will just stop paying on the loan and walk away from the car, forcing a repo and all the hassle of finding a new debt-serf to carry the load.

But the people who can’t scrape together $5k in cash are often precisely the people who cannot qualify for the new car loan, which may require a substantial down payment as well as excellent credit.

So, they finance the used car and often pay more per month on a car that is more likely to suffer a failure of some kind or need repairs such as brake work or new tires. They would have no money to pay for that either.

Everyone loses in this game except the big-chain car stores that Hoover up all the used cars at fire-sale prices and resell (refinance) them to people too broke to buy the same car outright for less from a private party.

The private party, in turn, gets bled of the difference, reducing their “stack” of reserve cash or their hopes of using the money they just lost to pay for some necessary thing with that cash, as opposed to financing it on credit.

If you’ve noticed a common theme here, you’re already ahead of the story. It is the same theme played out during the government-ordered “lockdowns,” which harmed private individuals for the benefit of large corporations – which were not “locked down” – notwithstanding that almost all of them sold items that didn’t meet the “essential” criteria propounded by the government.

The essential thing to remember is the calculated impoverishment of the average American for the sake of these corporate combines, which have as their goal fief-dependence via debt, will hold limitless power over the average American for the simple reason “beggars can’t be choosers.”

You get what they give you, nothing more.

Welcome to your new normal.

Eric Peters lives in Virginia and enjoys driving cars and motorcycles. In the past, Eric worked as a car journalist for many prominent mainstream media outlets. Currently, he focuses his time writing auto history books, reviewing cars, and blogging about cars+ for his website

Editor’s Note: The opinions expressed in this article are those of the author.

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