Another “Recession-proof” Myth Busted

Myth: "The used car market is recession-proof, because when times are hard, people buy used cars."

CarMax, the large used car chain which reported a steep drop in earnings last quarter, now says that the price of used SUVs and trucks is falling sharply.  Although it was not in the news story, the drop in SUV and truck prices is probably not fully compensated by rising values of fuel-efficient cars.  So the value of the CarMax inventory is dropping.

Let's talk about that myth.  I'll grant that someone affected by recession who absolutely needs a car is more likely to buy used than new.  However, most folks already have a car.  When they have lost their jobs, or are very worried about losing their jobs, they don't buy used instead of new; they buy nothing at all!

My research into the most cyclical industries showed used car sales as extremely vulnerable to recessions, despite the common myth.