Alaska used car prices run amok in ‘ridiculous’ market
For the second year in a row, used vehicle prices are skyrocketing nationally and in Alaska.
According federal data.
The surge in costs clearly exceeds that of other raw materials in a context of generalized national inflation. And they turned the Alaskan auto market upside down.
Used vehicles can fetch more today than two years ago — unheard of before the pandemic, sellers say. And with a low supply, it can take months to find a car. Many buyers say they are paying thousands of dollars more than they expected for high mileage cars and trucks.
Barbara and Marty Leichtung flew to Anchorage from Homer, where they live, to find the car they needed, a 2016 Honda CRV they had found on a previous trip. They got it back last week, after Continental Honda needed time to do some maintenance.
The couple paid about $27,000, said Marty Leichtung, a retired North Slope oilfield worker.
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The car would have sold for less than $20,000 before the pandemic, a salesperson said.
“That’s a lot of money for a 2016 car, but that’s the market these days,” Leichtung said.
The search took a few months because there weren’t many CRVs, he said. The car has 85,000 miles, but should last for years, he said.
The couple could have bought a new CRV for an extra $8,000, he said. But he stuck with a used car to stay thrifty, with the fragile US economy, he said.
“Now is not a good time to take too much money out of your savings,” he said.
“A mint for a car”
Auto dealers say the problem is rooted in the limited supply of new cars, underscored by empty showrooms at dealerships.
Delays in the manufacture and shipment of microchips and other auto parts, caused by the COVID-19 pandemic, continue to reduce the availability of new vehicles, they say.
This reduced the number of vehicles that once restocked the used car market in Alaska.
“It’s a direct impact of COVID,” said Jose McPherson of Good Guys Auto Sales, located near Gambell Street in downtown Anchorage. “These are supply chain issues. It’s the lack of microchips and raw materials to make cars. It is the lack of individuals to produce the products. It’s kind of a perfect storm, unfortunately.
With new cars hard to buy — they have to be ordered months in advance — rental car companies and individuals are holding onto their existing vehicles, further reducing supply, McPherson and other dealers said. Adding to the problem, small business owners who rent vehicles through Turo, pick up used vans and other second-hand vehicles.
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Dealers, getting fewer trade-ins, say they’re buying more and more cars at very competitive Lower 48 auctions. Add in the auction fees and the cost of shipping the car to Alaska, and sticker prices can rise well above the prices listed in the Kelley Blue Book and other guides, they say.
The prices are turning some buyers away, McPherson said last week over the phone as he placed bids at an online used-car auction in Washington state.
“Prices are high, but it’s not because I want to mint every car,” McPherson said last week. “It’s because I pay a mint for a car.”
On the other hand, people with a car for sale can make good deals.
This spring, Wasilla resident Sean Fitzpatrick traded in his 2018 Ford Edge SUV at an Anchorage dealership for $24,500. It was $500 more than he paid two years ago, after driving 50,000 miles.
“It was a huge shock to me because it had 85,000 miles when I sold it,” he said. “And there was cosmetic damage, door knocks, a crack in the windshield and tail light.”
Cars that wear out this much don’t normally increase in value, he said.
“This market is really ridiculous right now,” said Fitzpatrick, who commutes between Wasilla and Anchorage to work for the Alaska Department of Corrections.
In return, Fitzpatrick bought a 2020 Nissan Maxima for $30,000, a decent price, he said. It was the full-size sedan he wanted.
But it took nine months to find it.
“There just weren’t a lot of options,” he said. “I think I came across maybe nine vehicles in the class I was looking for, and most had over 50,000 miles or had cosmetic issues.”
Others are not so lucky.
Amanda Toorak, a city worker from the village of Kaktovik in northwest Alaska, paid nearly $36,000 for a 2015 Jeep Wrangler in May. It had 70,000 miles on it, she said. She found it after a month of searching in Fairbanks and Anchorage.
“It’s pretty crazy how high the prices are now,” she said. “I mean, if I had known the prices would be this high, I would have bought a car a few years ago and it might have cost $20,000 less.”
Toorak said getting his car to the village would require a barge expedition across the Arctic Ocean, adding more than $4,500. But she needs the Wrangler to ferry supplies and loved ones to the beach for whaling hunts that could begin in August, she said.
Used cars are a ‘strange outlier’, even in times of widespread inflation
Used car prices in Alaska and the United States have jumped higher than most other commodities as inflation hits levels not seen in decades, said Neal Fried, an economist at the Labor Department. and Alaskan workforce.
“It’s a weird outlier,” he said.
Alaska’s annual inflation rate in April jumped 7.5%, according to federal data. But used car prices in Alaska jumped 23.1%, while new vehicle prices rose only 3.1%.
Used car prices rose even more the previous year, from a period of stability.
The domestic used-car market has also seen a price spike since 2020, Fried said.
Price spikes, at least recently, have challenged the adage that cars quickly lose value, he said.
Dealerships say they are seeing more and more people out of the used car market.
“You can’t even find anything decent for less than $10,000 anymore,” said Vito Ungaro, owner of Vito’s Auto Sales on Muldoon Road in northeast Anchorage.
Before the pandemic, he was selling most cars for around $15,000. Now it’s over $20,000, he said.
Rising car prices and rising interest rates drive up borrowing costs. Gas prices are also squeezing budgets, he said. They recently hit a record high of $5.61 per gallon in Alaska, according the Alaska Automobile Association.
“When you increase the cost of a car from $3,000 to $5,000, it’s hard on people,” he said.
‘Why would I pay that for a used car?’
Marten Martensen, owner of Continental Auto Group with lots off Old Seward Highway in Anchorage, said some customers balk at high used car prices.
“They come into the store and say I paid that for my new car, so why should I pay that for a used car?” he said.
With supply chain issues continuing to delay car manufacturing, customers ordering new cars typically wait about three months before they arrive, he said. In May, a shipment to Alaska of 25 new Nissan vehicles was canceled at the last minute, he said.
“I don’t blame the manufacturers,” he said. “They want to sell cars. But the supply chain is so broken.
Martensen said that with the supply of new cars low, the company is putting more emphasis on selling used cars.
But overall inventory is down, as are sales and profits, he said. It now employs about 180 people, 70 fewer than before the pandemic, he said.
He said one positive is that people are keeping their cars longer, which is boosting Continental Auto’s repair business.
“The service and parts side is carrying us now,” he said.
Martensen said he’s heard from manufacturers that it could be two years before the new-car market recovers.
Fried, the economist, said that could help stabilize the used-car market. And if the U.S. economy slips into a recession, that could reduce demand for used cars, creating downward pressure on prices, Fried said.
No one knows when or if that will happen, Fried said.
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