Used cars are going up in value. There are many reasons why used car prices have been increasing steadily in the last few months. The impact on the motor industry of the global Covid 19 crisis has had an impact on the supply of new cars. Car plant assembly staff having to self isolate, or stay at home under lockdown, can cause production at motor manufacturers to slow, become inconsistent, or cease entirely.
This is a common trend in many western households. Kids, growing into young adults, eagerly wait to finally get behind the steering wheel and live their childhood dream. As parents, many want to earn the awe of their children and surprise them with their first vehicle as well. But that might now become a distant memory as used car prices soar past logical prices as of 2022.
The Prices Skyrocketed Last Few Months
Nearing the end of 2021, a woman living in Nebraska, USA rushed to Jeff Schrier’s local used car lot to replace her totaled vehicle with a working one. Given her tight budget, she eventually settled for a 2013 Toyota Scion for 7,500 USD.
Well, in the advent of the new year, the prices sky-rocketed beyond any rational level and settled at an astonishing price of 29,011 USD, and it is only a matter of time before it whizzes past 30,000. In fact, the prices increased so high, it is slowly outpricing the flexibility of many households.
This Nightmare can’t seem to not go away
Just when you think the semiconductor strains might ease up due to the restart of all production plants, bad news seems to be the only consistent visitor. Thanks to every manufacturer wanting a piece of that semiconductor pie, the automobile industry, unfortunately, got the short end of the stick. Experts thought the vehicle industry would come to a near standstill and hence advised manufacturers to focus on consumer electronics. This was a gross miss calculation on their part as the production of a newer model of cars came to a crippling halt but that was the opposite for the demand. This made the prices of used cars inflate.
If we look at pure numbers it gets bleaker. Edmunds.com stated that not only has used car prices closing towards new car prices, but the average new vehicle is also edging towards mid-range SUV prices, at about 46,000 USD due to the increase in demand for semiconductors.
Yet, used cars seem to be in competition for price increases as they slowly inch closer to new car prices. Since the pandemic properly grasped the world, the value of used cars leaped to 42%-over twice the increase for new cars. Last month, the prices of used cars were 63% of newer ones, as opposed to the 54% pre-pandemic.
What used to be 5000 USD is now 8000, and those that are 8000 USD are touching 12000.
The worst part is that the prices are here to stay for the foreseeable future and experts say not to expect changes for at least two years. Now if you are buying with installations, then the taxes, including a 10% down payment, and an interest rate of around 7.5% the average vehicle will cost 520 USD a month.
To put these numbers into perspective, the monthly payments used to be 412 USD two years ago and 382 USD five years ago. This means that buying a used car now is equivalent to buying a new car 5 years ago.
Even the citizens are jumping into this bandwagon and quickly selling off their cars at inflated prices. when asked, they say that they out this cash forward for a new vehicle that they had to purchase for a higher-than-base price.
Experts suggest that the price increase is directly tied to the cost of new ones and as the production lines for computer chips ramp up, the cars will slowly ease on the pricing and used cars will follow suit.
As of now, the number of cars available across car dealers nationally is merely one-third of the normal number pre-pandemic. Experts suggest that the prices would lessen if the number hit 2 to 2.5 million but that might take well into 2023. However, used car prices might never reach the amounts we are used to.
This is because used car prices used to factor in traditional methods such as leashes and trade-ins or sold by rental companies. But these methods are dried up
For the last decade, cars returning from 2 to 3-year leashes were the essential part of used car revenue. But now the amount is down by 22% and people end up purchasing the cars when the leashes end.
All these problems are most felt by people without any vehicle or modest incomes (essentially half the population of America). For these people used car prices have forced them to scour the US for finding the most affordable deal.
Only time will tell how all these numbers will truly unfold.