If you have recently been searching for a new vehicle, then you probably have noticed the tremendously high prices associated with used cars.
Prices for used cars began to skyrocket in July of 2021 and have only continued to grow in worth into 2022. Several factors including equipment and inventory shortages, pressure from the pandemic, and economic inflation has caused these spikes in prices, and some say there is no real end in sight.
The following article goes in-depth into what has caused this tremendous increase in prices and what the future may hold for used car buyers.
How high are used car prices?
Compared to last year, used car prices have risen 40 – 45%. That puts a price tag of $28,000 on an average used car. With income ranges remaining the same, this makes the average used car unaffordable for many people.
Why are used car prices so high?
Several factors including equipment and inventory shortages and economic inflation have caused these spikes in prices. There is a short supply of semiconductors and microchips that has halted the production of many new cars.
Because of this scarcity, the demand for used cars skyrocketed. People that were once shopping for new cars are now shopping for used cars. As with any relationship between supply and demand, the demand for used cars drove up their value.
Why was there a microchip shortage?
The global pandemic changed what kind of goods people were buying. There was a huge surge in the purchase of recreational vehicles, advanced trailers, smartphones, and microwaves, among many other devices that require microchips. Because of this surge in buying, a backlog occurred at these manufacturers.
How has this microchip shortage impacted car manufacturers?
Since 2020, the automotive industry has been dealing with these microchip shortages which have caused a delay in production at many manufacturing plants.
Companies such as Ford were forced to stop production and temporarily lay off 5,000 employees, while Toyota saw its profits drop 21% due to the shortages. Major car manufacturing companies hope to find quick solutions to restart production and regain their employees as soon as possible.
How has the pandemic affected the used car market?
The global pandemic and the regulations that followed caused issues in many manufacturing facilities including all those in the automotive industry. Many were forced to halt production several times, leading to the start of the shortage of new vehicles.
As the pandemic continued, production was able to start again, but problems within the supply chain halted work during all stages of production.
The current US economy’s inflation has also caused price surges in commodities related to used cars, which drives the prices up even more.
Automotive parts, gas, electricity, and other essential utilities that it takes to run a business have also gone up in price over the last year—read more from Slate. Most of the price hikes associated with inflated common commodities will be passed down to the consumer.
How has this changed the worth of some used cars?
Cars under $10,000 have drastically gone up in worth because dealers want cheap cars to be able to fill their lots. Used car dealers are having a very hard time stocking their lots, leading many to buy cars at auctions for much higher than they would have a year ago.
Some dealers are so desperate for cars to fill their lots that they have offered well over the asking price to get back cars they sold a few years ago. In the past, cars are worth less the moment you drive them off the lot, but in today’s market, they may be worth a little more!
Fortunately, for those that are less picky, you may be able to find an affordable reliable vehicle, but it will take time, bartering skills, and maybe a little luck.
If you are willing to buy an older vehicle, one with an odd color, an SUV with a third row, or something with a manual transmission, then you will have better luck finding a reasonable price.
Will the price for used cars level back off?
Some people are not surprisingly skeptical about the used car prices going back to what they were pre-pandemic, sourcing continued inflation and foreign conflicts as reasons for continued high prices for used cars. But others say that once the market catches back up to demand, then prices will naturally drop back down. How far prices will go, no one can predict.
Once the market demand for used cars goes down, so will the prices. This will begin to naturally occur when new cars are back to full production.
This will send the people that have been frantically buying whatever used car they can, back to the new car market. Possibly leading to a flood of used cars entering the market, lowering prices even more.
Is their hope for the market to change soon?
There is hope! Many automotive manufacturing companies like Tesla have begun making their own microchip manufacturing facilities. They hope to catch up on production and ensure they won’t be dealing with a future microchip shortage.
There are also higher interest rates predicted to start, which will decrease the number of people opting for car loans, which in turn will decrease demand. Some experts suggest that we will begin to see a drop in the price of used cars by the second half of 2022.
How can I protect myself in this market?
Buyer beware! This trend in the rise of used car prices has led many to list their cars for way over their potential worth. Even in this market, a damaged, broken, or severely rusty car could seem like a good deal until you are stuck on the side of the road.
Be vigilant of what you are buying so that you don’t end up with a vehicle that isn’t worth a fraction of what you paid for it. If you are concerned, then ask to bring the vehicle to a repair shop for a free vehicle report. Otherwise, if you can, save your money and wait for the market to come back down.