Post #616 by tecmo on the Falling Knives board

Investment Strategies / Falling Knives

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Remember, these are not new cars, so the simple supply/demand curve logic of new cars doesn't directly apply. For every buyer of a used car, there has to have been a seller of a used car. The first may decrease in propensity to trade with a higher price, but the second might increase propensity to trade, and it's mainly the number of transactions that matters.

If new car prices rise; it would be logical to assume that will result in less buyers for new cars, thus limiting the number of resell cars that hit the market.

Occasionally chaos and turmoil during recessions can increase car trading volumes even as affordability falls--lots of repos, for example. The clearing price may fall, but the volume may hold up. That's not the general rule, I'm just pointing out that it's not all a simple linear relationship. Arguably something like the attractiveness of car leases 3-4 years previously may be a bigger predictor of used car volume than current used and new car prices.

Agree that the car lease market is probably the best indicator of future volumes....

tecmo
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