By Albert Bozzo, CNBC Senior Features Editor
Demand may be lacking in many parts of the sluggish US economy, but not for the used car market. But that may not be an altogether good thing. Prices for many used vehicle types are making double-digit gains over a year ago, even showing up in the latest CPI data. Meanwhile dealers are scrambling to find vehicles, especially the most popular SUVs and light trucks. So when Auto Nation ( AN) reports second-quarter earnings Thursday, look for another strong showing, following a 23-percent increase in used-car revenue during the first three months of 2010. "It been a good year for dealers," says Tom Webb, chief economist with Manheim Auto Auctions, one of the major suppliers of used vehicles, who adds that most cars now move on and off the lot in less than the usual 45-60 days. Happy days, however, are not exactly here again. "It's unusual that the market has sustained its strength for so long," says Juan Flores, director of vehicle valuation at Kelley Blue Book. "Six months of sustained strength is an indication that supply constraints clearly had an impact and the unemployment rate had an impact by having consumers choose used over new." In other words, the good news in the used car market is likely bad news for the broader economy, as the woes of the financial crisis and the recession continue. It has also led to a shortage of used inventory on the market that shows little sign of letting up anytime soon. Ford ( F), General Motors and Chrysler quickly slashed production in 2008 as new vehicle sales plunged. Annual auto sales dipped to under 9 million a year in 2008, compared to 15-17 million during the 2004-2007 period. "Every new car represents a potential used car down the road," says Tom Kontos, chief economist and EVP of analytical services at Adessa, another major auto auction firm, who adds that 60 percent of new car purchases involve the trade in of an older, used model. The fact that new car sales rebounded to 10.4 million in 2009 and are running around 11 and a half percent better this year is small consolation, because it will take 2 to 4 years for most of those to hit the used car market.