Buying a used car today comes with a hefty price tag. With current used car prices at all-time highs, the average car can set you back a whopping $30,000.
While it’s prime time for sellers who have good-condition vehicles, it’s not good news if you’re trying to buy. Several important factors, including inflation and supply chain issues, explain why used car prices are through the roof.
Spiking prices and inventory shortages indicate just how hard the COVID-19 pandemic and economic issues are hitting buyers. Many are forced to rely on old, unreliable vehicles or wait until the market cools down. Some people who need a car now don’t have that option.
1. Supply Chain Issues
Before the pandemic, many consumers knew that they could walk onto a car lot, scan rows of cars with the dealer, and haggle over price. That’s a scenario that has vanished since consumers are now scrambling to find any vehicle, and dealerships know that there are an average of 4.5 to 5 million consumers waiting on the sidelines to snap up available cars.
According to a recent Kelly Blue Book study, a major difference between supply and demand has helped drive up car costs over the past few months.
At the height of the pandemic, manufacturers canceled orders for crucial semiconductor chips due to an inability to fulfill or ship the parts.
Due to manufacturer slowdowns, microchip shortages, and shipment delays, the car market has not yet recovered. Because demand continues to outstrip supply, used cars, SUVs, and truck prices continue to soar.
2. Worker Shortages
Supply chain issues aren’t the only reason behind sky-high car prices. Auto shutdowns also coincided with workers’ concerns about contracting COVID-19.
See the chart above for a visual of changing car prices.
Worried about catching the coronavirus or working in conditions without appropriate protective gear, some workers at auto plans protested working during the pandemic or staged walkouts. With employees getting sick or refusing to come to work, the gap between production and demand widened.
Worker shortages also occurred due to a lack of qualified workers. When older workers retired, it proved difficult to find new, qualified plant employees. A shortage of skilled technicians required to manufacture cars created new roadblocks for getting production on the road again—the Financial Samurai has a good article on that here.
3. Rising Inflation
You’ve probably noticed that car costs are hit by inflation just like your grocery, service, and utility bills. Inflation doesn’t help if you’re on a tight budget while shopping for a used car. It means that you will pay more to bring your next car home. Here are some fast facts to consider:
• Almost 89% of people shopping for cars today end up paying 5% or more over the sticker price.
• In fact, a new Kelly Blue Book (KBB) analysis found that most used car prices shot up a massive 35% compared to the beginning of the year.
• For example, the average new car price is currently $45,872 compared to the average $45,209 MSRP.
• According to Black Book, accelerated price trends are affecting both franchise dealers and independent businesses. Together, these have more than 95% of the car inventory for sale. Cox Automotive found that even used cars sold wholesale jumped up 15% in 2021.
If you’re checking out used car prices on places like CarGurus, you’ve probably noticed that you can expect to pay around $1,800 more for a vehicle (and an average of $22,470 for a used car) than before the start of the pandemic.
One way to offset the cost of inflation is to order your vehicle straight from the manufacturer. That way, you can avoid costly dealer add-ons and markups that can take cash straight out of your pocket.
The downside is that you may need to wait 6-8 weeks for your vehicle, but it’s a good way to ensure savings by paying the MSRP instead of inflated sticker prices.
4. Lower Used Car Inventory
Auto plant closures, worker shortages, and inflation all contributed to
Many people are hanging on to used cars since they can’t afford or obtain a new car. As a result, this has caused scarcity in the used car market. According to KBB, the number of used cars available is 15% lower than last year.
Here’s what that looks like. By the end of November 2021, used car dealers reported 2.31 million vehicles in stock compared to the 2.25 million a month earlier. While this indicates a slight increase in inventory, it’s important to note that these cars represented newer models.
If you’re looking for a car that is up to 2 years old, you’re more likely to find these in stock than cars that range from 2 to 8 years old. This increase in newer inventory helps explain the surge in average used car prices. New vehicles tend to cost more, but most buyers are hunting for less expensive models in the 8-plus age range.
Right now, the sweet spot price for new cars is less than $10,000.
With price hikes, buyers who can’t afford that baseline will have to buy older cars that may require more expensive repairs at a rate not seen since the 2008 recession saw severely curtailed auto production. In addition to this, the auto industry lost a total of 2.5 million sales in 2020. Another 2 million disappeared in 2021. This means that more people than ever are waiting for a car.
The good news is that inventory has not plummeted more than 1% since late 2021 and experts indicate that the market continues to improve slowly. Currently, it’s a waiting game.
The Bottom Line
Despite a restart for auto plants’ activity, an ongoing semiconductor chip shortage, rising inflation, the current war in Europe, and decreased car inventory have created a perfect storm that isn’t likely to resolve soon.
If you’re able to ride out surging prices in your current vehicle, you can wait for the market to cool down before shopping for a used car. If you need to buy one now, several strategies can help you save money in a tough market. These include comparison shopping, avoiding dealer markups, and doing your research to negotiate the best price.
To everything, there is a season. Inflation climbs, but according to experts should decrease in 2023. Supply chains are slowly recovering, while auto plants are rolling again. With time and perseverance, you can find the right used car price that works for you.