Could you tell us more? Was this in some niche segments of discontinued but popular models (like certain Subarus) or were run of the mill cars also like this?
Short version, a couple of things hit at the same time. I don't think Cash For Clunkers was involved as those cars were much older than the 1-2 year old ones, but it was more a factor of:
* shrinking new car demand in a post-financial-crisis buyer market that was very cost sensitive and had internalized the "cars lose 20% of their value the moment you drive them off the lot" type stuff, so started ruling out even cross-shopping new cars because they wanted to save money
* banks and dealers having more aggressive incentives and better loan rates on new cars (which is true even in non-recession-times, but they had to get more aggressive as new car demand dropped)
Combination of really low interest rates on new cars, and used cars becoming more rare due to cash-for-clunkers and maybe other programs.
I don't think is was the case that used cars were literally more expensive, just that with 0% financing everywhere vs paying cash for used, or vs used car loan rates, you were probably better off getting a new car.
I'm a few months from paying off my car which I got a 2% rate on. Financing a decent used car would have been a rate of around 8% - it about broke even with expected depreciation, and it was hard to find a good used car to begin with.
Essentially the cash for clunkers program took a lot of serviceable old cars off the market permanently by destroying them. Here's a write-up I found on some of the issues with links to more details: https://www.bostonglobe.com/opinion/2014/08/31/cash-for-clun...
I think it was circa 2012, and I may be exaggerating somewhat, but I particularly remember seeing new, lots-of-option Kia Souls selling for ~$18.5k new (window price) right next to used ones going for ~$18.5k used (window price) with nearly the same options on both. I think I also saw something similar with a few models of Honda, but my memory is most vivid with the Souls. And if memory serves, even when used was cheaper it was often not a whole lot cheaper. I also remember at least one dealer marking up all their new cars in the $17k to $25k MSRP range to new MSRP + $5k, and interspersing them with used of the same model at new MSRP (obviously sticker price is supposed to be negotiated, but it was still kind of ridiculous).
I think for the most part there just weren't very many quality (workhorse model, a-la Prius, Civic, etc.) used cars for sale in my area at the time that weren't 4-ish years old or more or which didn't have more than 64k miles or significant and obvious problems.
And yeah, interest rates on new cars loans were sometimes sub 1%, rarely more than 2%.
Keep in mind that a new car dealer is the worst place to buy a used car. Of course the dealer over prices the used cars to make the new cars look good, that way new or used they make a good profit.
Cash for clunkers pulled lots of used cars off the market but my understanding is plummeting manufacturing of new cars after the financial crisis was responsible for a much higher percentage of the gain.
Cash for clunkers pulled like 700k out of the market.
The auto industry was making millions less cars and trucks per year from 2008-2012.
Backwards-bending supply curves, among other things.
If the only thing an auto manufacturer has available to meet liquidity requirements is selling cars (and they've got access to absurdly low interest), then the price of those cars will fall.
Owners of used vehicles have use-value, and are similarly cash-squeezed (financial crisis), so hold on to those.
