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Why are car prices going up?

New and used car prices are higher this summer.

How could that be?

Cash For ClunkersWe’re in the middle of a recession that drove General Motors and Chrysler into bankruptcy and caused new car and truck sales to plunge from about 17 million a year to fewer than 10 million.

Yet buyers are paying very close to sticker price for many new models, and used car prices and 9% higher than they were last summer.

For new cars and trucks, the problem is supply.

When the recession whacked sales, dealers dramatically reduced the number of cars and trucks they ordered, and the car companies closed their assembly plants for weeks at a time.

By July 1, Automotive News said the inventory of new cars and trucks was already one-third lower than it was this time last year.

Then along came “Cash for Clunkers,” the government program that pays up to $4,500 for older, fuel-thirsty vehicles that are traded in for newer, more fuel-efficient cars and trucks.

It was wildly successful, resulting in 250,000 purchases in just one week. One Illinois dealer told us he’d been open until midnight every day just to keep up with the demand the clunker program created.

July was the best month for car sales this year and Congress has extended the clunker program through Labor Day.

As a result, most dealerships have acres of empty lots and no reason to dicker over the few models left in their depleted inventory.

You’ll also find fewer, and less lucrative rebates, are available as well.

Inventories are so low that Chrysler, which had a huge backlog of unsold cars and trucks this past winter, is actually reducing its rebates and cut-rate financing on several models.

Although Automotive News reports that automakers are ramping up production to replenish the supply, the extension of Cash for Clunkers will have them playing catch-up at least well into the fall.

The story is much the same for used cars.

Automotive News says used-car prices were 9% higher in June, over June 2008.

The dramatic decline in new car sales means fewer trade-ins are finding their way into the system and rental car companies are also keeping vehicles longer, further reducing the number of low-mileage, late-model used cars and trucks that most used car shoppers want.

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