Why are used cars so expensive and when will the costs go down?
Used car shoppers have been shocked by the stickers due to soaring vehicle costs – and there are fears the price spikes may continue.
These buyers, some of whom are hesitant about rising costs out of necessity, do not see red. The average price for a used car in November, according to car dealership Edmunds.com, was $ 29,011. This is a sharp increase of 21.4% from the same period in 2020, when the average cost was $ 22,679.
More than 2 million used car buyers buy “very expensive used vehicles” every month, KPMG said in a December report.
Here’s a look at the rising costs of used vehicles, which experts say is being driven by the new auto market.
The average price of a used car increased each month from February to November 2021, according to data from Edmunds. December figures were not available.
The surge began years ago, but worsened in 2020. In January 2016, the average cost of a used car was $ 18,661 – and prices kept rising before a strong increase last year.
“Used prices regularly break records as the shortage of new cars diverts buyers to the only other option, the used market,” Ivan Drury, senior manager of Edmunds, said in a statement to McClatchy News.
It’s not just Edmunds, as Kelley Blue Book also noted the high prices. Kelley Blue Book said last month that its average used car sale price in November was $ 27,569, a 27% increase from the previous year.
KPMG called the surge “unprecedented”, with its decades of data showing “nothing like 2021”.
“I’ve never seen anything close to this – it’s crazy,” longtime Nebraska car dealer Jeff Schrier told The Associated Press. “It’s pretty frustrating for so many people right now.”
Shortage of chips affecting the surge
A global shortage of microchips for new vehicles has pushed up the prices of new cars, which in turn has affected the used car market.
“Chip vendors closed their own factories at the start of the COVID-19 pandemic to protect the health of their workers,” Kelley Blue Book said. “Once they were able to resume production, an economic slowdown triggered by the pandemic led automakers to cut orders.”
According to Kelley Blue Book, chip factories were overwhelmed with demand as buyers “went on an electronics buying frenzy” when the economy began to recover.
Factories eventually closed when they couldn’t finish building automobiles, according to the AP. The shortage has resulted in a shortfall of around 8 million vehicles in 2021, according to Consumer Reports.
Like used cars, the average cost of new cars has also increased. Edmunds says the average price for a new car in November was $ 45,209, up almost $ 5,000 from early 2020.
“It’s the same thing happening with cottage cheese and houses and everything right now. I mean, it’s inflation and we’ve seen it in the auto market, ”Jay Leonard, owner of Preferred Automotive Group, told WANE. “When you have new cars that aren’t built and the only things available are used cars, the price will go up.”
What else is causing the price hikes?
A labor shortage has also resulted in a decrease in the production of new vehicles. Kelly Blue Book said automakers had more than 584,000 jobs in October that they were unable to fill.
Fewer new vehicles on the land also means fewer people are selling their old vehicles. This has led to a shortage of used cars, driving up prices.
“There are also used car supply constraints resulting from reduced trade on new car sales, rental returns not reverting to their standard rate, and car rental companies unable to release inventory. used due to a lack of new replacement cars, ”Ivan Drury with Edmunds said McClatchy.
Some dealers who often had hundreds of used cars on their lots now have fewer than 10, according to KPMG.
“Ford and GM are both reporting sharp declines in lease return rates,” KPMG said. “In 2020, more than three quarters of their rental cars were returned. By mid-2021, that figure had fallen to 10% for GM and 34% for Ford.
When will prices stop rising? Or will they do it?
Experts are mostly gloomy about their 2022 outlook for the used car market. This is in part because the chip shortage continues to be a problem in the auto industry.
“It will take another one to two years before the industry can catch up with demand,” Patrick Gelsinger, CEO of Intel, told investors in July, according to The Register.
Kazunori Ito, head of equity research for financial services giant Morningstar, sees 2023 as the date on which a change could occur. He said in August that “the current crisis is due to the lack of production from suppliers and (automakers) are trying to buy more components than they need,” according to Market Watch.
Determining when the push will stop may also depend on inflation, says KPMG.
“If prices continue to rise, it could create a new low for new and used car prices,” KPMG said. “Raising interest rates to curb inflation could also reduce consumer demand, put downward pressure on prices and bring back aggressive incentive spending. The other factor is how quickly the industry resolves supply chain issues and ramps up production. ”
High used car values can be expected throughout the year, Drury said with Edmunds. Leonard, the owner of Preferred Automotive Group in Indiana, hopes “this will all be a thing of the past” by early 2023, he told WANE.
Which vehicles are most and least affected?
Analysis from iSeeCars.com indicates that prices for Nissan LEAF, Misubishi Mirage, Chevrolet Spark and Kia Forte increased the most from November 2020 to November 2021.
LEAF, according to the analysis, fell from an average cost of $ 8,404 to $ 21,524.
“While the prices of used cars for all electric vehicles have increased in recent months, the dramatic increase in prices for used Nissan LEAF could be attributed to the 2018 model, which featured a significant increase in the range of vehicles. electrical, performance upgrades and an exterior facelift, and that’s just entering the market this year in substantial numbers, ”said Karl Brauer, executive analyst of iSeeCars.
The website says the Volvo XC90, Nissan Titan XD, Porsche Macan and INFINITI QX80 registered the smallest price increases from August 2020 through August 2021. The list is dominated by luxury SUVs, including the XC90 whose price rose only 9.3%.
Looking for a used car? here are a few tips
A used car, if you can afford it, is one of the best investments you can make, market researcher Jim Bianco told CNBC last month.
“If you want to know what’s the best investment you’ve probably had in 2021, it’s that car that’s in your driveway or in that garage,” Bianco said. “It appreciates faster than the stock market and lately faster than some cryptocurrencies.”
He encourages people who buy used cars to return them to do so now, “because it will only get more expensive.”
If you need a used vehicle, Kelley Blue Book encourages buyers to broaden their search, be patient, understand the timing, and don’t jump on the first offer.
“It might be a good idea to keep your current car for another year if you can,” said Kelley Blue Book. “If you have to buy, be prepared to take good care of your next car to keep it running for a long time. “
David Parris, a senior executive at JD Power, said the time may have come to buy a new car, according to the AP. While the prices of new cars are also increasing, they are doing so at lower levels.
“If you look closely enough and are willing to wait and travel, you can find deals at most brands,” Paris told the AP.