Used Car Prices Have Skyrocketed to 39% More Than They Were a Year Ago
There are multiple reasons that used cars are in short supply, and some of these reasons are related to the fact that new cars are in short supply. It all boils down to the pandemic.
When many people started working from home during the pandemic, people were driving to work less often. They needed a reliable computer more than they needed a reliable car. As such, semiconductor makers shifted their focus on producing chips for consumer electronics instead of making chips for new cars. In addition, for a period of time, auto production companies closed their production plants for awhile to help slow the spread of Covid-19.
While new cars are once again under production, there are way fewer new cars available than usual. Currently, there are about one million new cars available in the United States instead of a normal two to two and a half million. That’s less than half the normal availability.
With new cars in short supply, that also puts used cars in short supply. In some cases, people are choosing to keep their cars longer than they would otherwise due to the low supply of new cars. For example, some people are choosing to buy their cars when their lease expires instead of turning it back into the dealership. In addition, some rental car companies are keeping their rental cars longer than usual and even buying used cars instead of new cars when they need to add inventory.
For car buyers, this all means that used car prices have skyrocketed. In fact, used cars cost approximately 39% more than they did this time last year.
Jeff Schrier has been selling cars for 35 years, and he finds the jump in price for used cars quite shocking. He knows customers are surprised and frustrated when he shows them what they can afford on their budget. He explained, “I’ve never seen anything remotely close to this — it’s craziness. It’s quite frustrating for so many people right now.”
While Schrier used to be able to sell low-income or low-budget buyers a used car for around $5000, that option doesn’t exist right now. He explained, “What used to be a $5,000 car is now $8,000. What used to be $8,000 is now $11,000 or $12,000.”
The only people who stand to benefit from the increase in used car prices are people who want to sell a car and don’t need to buy a replacement. According to David Paris, a senior manager at J.D. Power, the average trade-in value for a car is approximately $9000, which is double what it was a year ago.
Prices for new and used cars should go back to normal eventually, but we’re probably looking at 2023. If you can’t wait a year or more to get a car, know going in to expect sticker shock and competition from other buyers.