Is There a Chance Car Prices Could Plummet?

Everywhere you look, people are talking about the recession being over. Almost everyone is predicting the economy has recovered, the worst is over, and we should see consumers buying lots of things by the end of this year, including more cars.

The stock market has risen about 50% after hitting a low in March. Even house prices have inched up slightly in the past couple of months.

It would seem everything is rosy once again, but before you get your hopes up, there is a good possibility we will see a double dip recession.

All the positive economic news of late has come about due to government spending and intervention. This is not sustainable.

Most consumers have gone from being spenders to savers. Unemployment is officially at 10% but when you take into account all the people who are working part-time when they want to be working full-time, and all the people who have given up looking for a job, the real unemployment rate is closer to 17%. These are not good numbers and they're likely to go up until the middle of 2010.

So how does all of this affect car prices? First off, most car companies have bought into the idea the economy has recovered and the worst is behind us. They will be producing a total of 2.72 million cars in the 4th quarter in anticipation of an increase in sales. Ford is leading the way with a 35% increase over last year followed by Toyota with a 26% increase. Nissan is increasing production by 18%.

Some of this production will be used to replace depleted inventory resulting from the "cash for clunkers" program. Much of it is simply a bet that car sales will improve.

There's always a chance the predictions will be correct and the economy will continue to improve, but if things turn ugly again, we're going to have a situation where there is way too much supply and no demand for cars.

This would lead to a big drop in car prices. If you're considering buying a car now, it may be worthwhile to wait a few months and see where we go from here. Right now, car dealers are still low on inventory and are not giving exceptional deals other than for leftover 2009 models.

If we do go into another recession, there is no telling how far car sales will plummet. One thing is for sure, production is slated to go up and if demand falls off a cliff, car makers will be forced to raise incentives to move the inventory. It could be a huge buyer's market, that is, if you're even willing to buy a car at that point.