Presumably that car goes to someone else who will use it rather than being scrapped (a la Cash-for-Clunkers), right?

I've argued* that, because we drive our second car so little per year, that it makes more sense for us to buy an inexpensive, relatively gas-guzzling used car rather than a more economical hybrid. Reasoning being that someone is going to drive the gas guzzler and someone is going to drive that hybrid and better the hybrid go to someone driving a typical amount and we drive the worse one only 2-3K miles/year.

* - so far unsuccessfully, but the crazy used car market has made that moot for now.

By buying an SUV (used or not), you're increasing--if only slightly--total demand for SUVs. Increased demand usually begets increased production.

Reasonable logic, but I feel that a moderately priced small/medium electric car would be ideal for the day-to-day short trips around town that is most of our driving these days. Unfortunately such cars don't exist yet in my market and there is not yet a significant used market for electric cars.

I completely agree! Because I only use my car for long trips (1h or more) a couple times a month. I got a 25 years old executive sedan... Sure 21 MPG is bad, but no new cars was made for my needs. And I stay under 3 metric tons of CO2 per year.

This could be true, but isn't the whole story. Cars tend to be sold more and more as they age, for lower and lower prices. In fact, where I live (Honduras), many of the vehicles were "totaled" in the US, sold as salvage in the US, then imported to Honduras and fixed. My daily driver is an SUV that was a salvage title from Wisconsin. It has a little over 150,000 miles on it and I'm pretty sure my mechanic can keep it running over 200,000.