A Glut of Cars, New and Used

And many cars aren't even reaching a ripe old age these days because newer models are designed to crumple in a serious accident, thereby absorbing the energy of the crash and protecting the car's occupants. That means more vehicles are being "totaled" in accidents and junked, said Dennis Galbraith, senior director of the automotive practice at J.D. Power & Associates.

But these effects are relatively slight compared with the steady growth in the number of new cars we're buying and trading in every year. So far this year, 9.9 million new cars and light trucks have been sold in this country, according to Ward's Automotive Business, compared with 9.7 million in the first seven months of 2003. And the more we buy new cars and trade in our almost-new ones, the more cars we send downstream.

"Used-car prices have been pretty weak -- this is the third year -- just because of oversupply," said John Thomas, an industry analyst for the National Automobile Dealers Association. "You have dealers that are carrying larger inventories for used vehicles because there's not that much demand."

Does anyone care? Used-car dealers don't exactly inspire a lot of sympathy, and for the time being, they're benefiting from low interest rates. But some industry observers say this whole fragile balance could be severely disrupted if interest rates go up, which would make it more expensive for used-car dealers to keep those larger inventories.

And if the used-car dealers start hurting, that just may make it harder to prop up new-car sales with so many incentives and short-term lease deals. Not only would a severe drop in used-car prices put more downward pressure on new-car prices, it might also disrupt the fragile balance that has developed between new cars sold and old cars bought.

Right now, manufacturers and dealers can keep pushing us into new vehicles because both dealer and consumer know that there will be a market for that vehicle four years down the road. "Buyers now are more cognizant of what the residual value of their vehicle will be when they want to get rid of it," Webb said.

But those residual values are impacted by the vibrancy of the used-car market. Manufacturers have done a lot to help strengthen the market for later-model used cars by creating a new class of "certified" pre-owned automobiles that carry good warranty protections. But there's only so much big automakers can do to influence the value of all the cars that are piling up after two, three or four owners -- especially if the economic recovery doesn't bring the increased demand the industry is hoping for.

Eventually, whether it's next year or five years from now, that weakness could dam up the flow of vehicles throughout the marketing stream. And if that happens, we may have to adjust our expectations about new cars, how easy they are to buy and how often we really need one.

If you have a question, comment or concern about what you see when you shop, send an email to sellingus@washpost.com.