Why are used cars prices so high — what’s going on?
It’s Summer 2021 and used car prices are astronomical; way more than they’re worth. How did things get so out of whack? Blame the pandemic and the computer chip shortage. It’s the perfect storm that’s resulted in a shortage of new and used cars. Used cars are expensive and you can put off buying, that’s what you should do.
Here’s what raised the price of used cars
1) The pandemic hit and people stopped traveling.
With no one traveling, rental car companies found themselves with huge inventories of cars and trucks and no renters. So they sold off about 90% of their fleets in early 2020 to free up cash and stay in business. People who had jobs bought up those vehicles.
2) People lost their jobs and tightened their belts
So they stopped buying new cars, which meant car dealers didn’t get any trade-ins.
3) Leaseholders decided against leasing again and bought their vehicles at the end of their lease.
As used cars prices increased, leaseholders realized that buying their leased vehicle at the end of their lease was a bargain. Car dealers get the majority of their used cars from lease returns and trade-ins, so car dealers stopped getting inventory.
4) During the pandemic, people bought computers, TVs, webcams and just about every other consumer electronics device.
The computer and electronics industries started buying up all the available computer chips on the market so they could build new products. The car industry stopped buying chips and didn’t really care about the chip industry since they weren’t selling cars anyway. Big mistake!
Then one of the major chip manufacturers had a factory fire that destroyed a sizeable portion of the world’s supply of computer chips. The remaining chip manufacturers maxed out their capacity filling orders to the computer and electronics manufacturers. When new car demand increased after the vaccines became available, the carmakers couldn’t build new vehicles. Well, they could, but they had to build them and park them because they didn’t have the computers to make them run. So car dealers ran short of new vehicles. If they can sell new cars, they can’t get trade-ins.
With no new cars entering the market, people who needed vehicles were forced into the used car market; putting further pressure on used car prices.
5) Online sellers like Carvana launched a major advertising blitz offering to pay top dollar for good used cars.
Car dealers never took these sellers seriously. But once the online sellers started scooping up used car inventory, car dealers had to respond by buying cars from private parties on Facebook marketplace and Craigslist. Now there were three major players looking for used cars; dealers, private parties, and online sellers.
The result used car prices are ridiculously high; way more than their worth simply because of supply and demand.
When will used car prices drop
The latest projections are that used car prices will remain high well into 2022. Carmakers feel that they’ll have enough computer chips to satisfy pent-up demand by Jan 2022. Then buyers will start trading in their old vehicles. However, as more people travel, that’ll increase the demand for rental cars, and that will eat up a portion of the new car production.
It’s a mess and nobody knows when it will stop
The Delta variant is throwing a whole new curveball into the picture and nobody knows what the next variant will do. Bottom line: if you can put off buying a used car right now, do it.
©, 2021 Rick Muscoplat
Posted on by Rick Muscoplat