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Used-car shoppers haven't stopped buying Volkswagen's dirty diesels

Volkswagen diesels sit behind a security fence on

Volkswagen diesels sit behind a security fence on a storage lot near a VW dealership in Salt Lake City, Sept. 23, 2015. Credit: AP

Car dealers predictably steered clear of Volkswagen's dirty diesels after the company admitted to equipping its cars to cheat emissions tests. At auction, values for the 500,000 or so affected cars in the United States fell between 8 percent and 14.5 percent after the Volkswagen announcement in mid-September, according to new data from Kelley Blue Book. Values for gas-powered versions of the same cars dipped by 1.8 percent, evidence that the scandal could weigh on Volkswagen's reputation at large.

The price drop isn't surprising. The risk of being stuck with a bunch of toxic assets isn't worth the reward to the average car dealer. Drivers, however, see things differently. Volkswagen's diesels don't appear to have been dented nearly as much on secondary markets, where owners sell used cars directly.

At CarGurus, an online car shopping platform, the average price of the affected cars has only dipped by .06 percent since the scandal broke. Carlypso, a California based car-shopping startup, reported a price drop of .3 percent. That's right-all the hue and cry about a sinister plot to cheat emissions tests sent prices plunging by about $30. "So far, it looks pretty much like a wash," said Carlypso co-founder Chris Coleman.

This isn't to say people don't expect values on these cars to change drastically. It's just that the predictions are polarized and, at the moment, they appear to be canceling each other out. Even the opinions of Carlypso's staff are drastically split. "I had one colleague here telling me prices were going to hit rock-bottom," Coleman explained. "I'm in the other camp."

Propping prices up are the people who expect Volkswagen to somehow make good after the scandal. The company is exploring a range of options, from a software fix to completely replacing the cars. Considering the flurry of lawsuits, financial settlements also seem likely.

Many TDI owners are taking a wait-and-see approach. Heidi Johnson, a fashion-apparel buyer in Charleston, S.C., doesn't feel like she has a lot of options for the 2014 Volkswagen Beetle she bought a few months ago for $19,000. "I owe money on it," she said, "and at this point who's going to want to buy it?"

What's more, Johnson really loves the champagne-colored bug: "It's such a great car. The only problem is I'm embarrassed to drive it now."

Her experience speaks to another bullish force in the market: diesel fans. The largest source of diesel engines in the U.S. just vanished, leaving the 500,000 pilloried models as pretty much the only supply. Demand among diesel diehards is likely propping up prices.

The early days of the scandal provide a sense of just how strong diesel-fever can be. The market for newVolkswagen diesels ground to a stop quickly, as the company froze sales of 2015 models. But a few new vehicles still trickled off of lots in the fourth week of September, according to TrueCar, a company that matches online shoppers with nearby dealers.

The average transaction price for those cars was $30,671, an astonishing 13 percent higher than it had been two weeks before the diesel scandal broke. Think about that: As headlines grew even more alarming and Volkswagenexecutives were prepping for a new chief executive, U.S. drivers paying far more for diesel Volkswagens than they had been at any point in the year to date.

What about the pollution? If the Hummer boom of the late-90s is any indicator, plenty of drivers simply won't care. Pollution is what economists call an externality, a cost born by all of us-as opposed to an internality, such as buying a dated Chevrolet Cobalt with a questionable ignition switch that only affects the individual.

Where Volkswagen values go from here is far from certain. Much depends on how the company repairs both its cars and its reputation. The only thing we know for sure is that drivers remain exceedingly curious about the situation. Since Volkswagen admitting to gaming emissions tests, Kelley Blue Book has seen a 7 percent increase in web traffic from people shopping for Volkswagen diesels. There has also been a 79 percent jump in the volume of owners searching for the trade-in value on the same models.

"There's definitely a bit of an asterisk on these cars right now," said Rick Wainschel, vice president of customer analytics at KBB. "People are searching for any information that they can get."


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