The Post-Clunker Rise in Car Prices

By Ken Thomas, Associated Press Writer

The government's Cash for Clunkers program offered a lot of Americans great deals on new cars. Now, those falling prices have shifted into reverse.

Prices for new and used cars rose sharply in October, partially reflecting a whiplash from the government trade-in program that winnowed inventories at dealership lots. The price spike also has to do with car companies delivering more expensive 2010 models to the showroom.

The Labor Department reported Wednesday that consumer prices for new cars rose 1.6 percent, the largest monthly increase since May 1981. Used cars also saw a price hike of 3.4 percent in October — their largest increase since September 1980.

All of this came against the backdrop of a sluggish economy — consumer prices are lower than a year ago and the higher car prices accounted for 90 percent of the overall 0.3 percent consumer price gains last month.

Economists and analysts said the steeper prices reflected a combination of factors in the new and used car market. Here's a look at what happened and what to expect in the months ahead.

Q: Why did new car prices spike when everything else was flat?

A: Cash for Clunkers, the summertime government program that gave consumers up to $4,500 to trade in a clunker for a more fuel-efficient vehicle, helped many new car dealers reduce their inventories in July and August. And most car companies have cut production because of the tough economy so many consumers had less to choose from when they surveyed dealerships in October.

The tighter inventories came as the new 2010 model year vehicles arrived en masse and many dealerships and manufacturers were less inclined to offer incentives.

"The Cash for Clunkers program may have wiped out the '09 models that have been sitting there but the brand-new 2010 models come and they can command a higher price for those," said Dr. James Brock, an economist at Miami University in Oxford, Ohio.

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