In 1966 an assistant economics professor, George Akerlof, tried to explain why this is so in a working paper called "The Market for 'Lemons.' " His basic insight was simple: If somebody who has plenty of experience driving a particular car is keen to sell it to you, why should you be so keen to buy it?Consider, though, some factors that would make Akerlof's analysis useless.
Akerlof showed that insight could have dramatic consequences. Buyers' perfectly sensible fears of being ripped off could, in principle, wipe out the entire used-car market: There would be no price that a rational seller would offer that was low enough to make the sale. The deeper the discount, the more the buyer would be sure that the car was a terrible lemon.
1. Early in this century, in an attempt to spark sales, a spate of zero- or low-percent financing offers meant that consumers traded in perfectly good cars as down payments on shiny new ones. (I've bought two used cars that rolled in this way, and both have been just fine, thank you.)
2. People sell and buy used cars for a variety of reasons, some rational, some not. Sometimes old cars are boring, even if reliable. Sometimes life happens--grandma loses her license because of fading vision, junior heads to college in faraway Vermont. Sometimes tragedy strikes--a lost job means scaling back, late on payments means the repo man comes a-knockin'. People don't hang on to cars if they don't have to.
3. The Blue Book and its counterparts act as an informal market regulator. To be competitive, dealers have to sell "below book." Buyers "know" what a car "should" be worth.
4. The relatively recent "certified used" phenomenon takes away a lot of the guesswork and risk involved.
Don't assume that a rational analysis of rational facts is going to explain the way a market really works. And buy used if you want to. It's your money.