Morrie’s Automotive Group Inc. has only $6 million worth of used cars available for sale at its eight Twin Cities dealerships, two-thirds less than it had a year ago.

Demand is relatively high for used cars, but declining supply and the corresponding rise in prices are making it difficult for Minnetonka, Minnesota-based Morrie’s and other local dealerships to purchase enough vehicles to keep their lots fully stocked.

Used-vehicle values have risen for seven straight months due to decreased supply, according to the most recent Used Vehicle Index from Atlanta-based Manheim Consulting, which operates auto auctions at sites across the country. And the "Cash for Clunkers" program further restricted supply, driving up costs.

Prices are up across the board for used vehicles, but the supply is especially tight for cars and trucks that are just one or two years old, Manheim Chief Economist Tom Webb said.

“That’s probably one of our biggest challenges right now — acquiring inventory at what we consider a reasonable price,” said Morrie’s Chief Operating Officer Karl Schmidt, who estimated that his company is paying an average of 10 to 15 percent more for used cars than it did a year ago.

Obscene prices

Dealerships typically get a little more than half of their used cars through trade-ins. Due to the recession, consumers are buying fewer new cars, so they’re trading in fewer as well.

Dealers now need to rely more on auctions and other wholesale sources. It’s getting harder to find bargains at the auctions, though.

The auction buyer for Morrie’s, for example, will go out on a three-day “car-buying mission” and come back with just two or three cars, Schmidt said. “There’s just no availability at the right price.”

Sports-utility vehicle prices have jumped the most, thanks to lower gas prices, he said. “You’re seeing pretty dramatic $3,000 or $4,000 swings on some of the SUVs. People got used to buying those pretty cheap a year ago, but that didn’t last long.”

Paul Walser, CEO of Bloomington, Minnesota-based Walser Automotive Group Inc., said he hoped used-car prices would start dropping after the start of the federal “Cash for Clunkers” program, which provides consumers with vouchers of $3,500 to $4,500 for trading in old cars and trucks for newer, more fuel-efficient vehicles. New-car incentive programs typically pull down prices for used vehicles, but that wasn’t the case this time because the impact was offset by low inventories of new products.