The period of affordable used cars in the United States has come to an end after nearly a year. The average price of used cars had been dropping and was welcome relief for many people.
However, due to a shortage in supply and increasing demand, prices are on the rise once again. Fewer people can afford new cars, which means fewer trade-ins for dealers. The scarcity of used cars is also exacerbated by a decrease in leased vehicles or rental cars being sold.
Price for Used Cars
The cost of used cars has risen by $700 on average in the last month, and experts predict that prices will continue to climb, at least through the summer months.Pete Catalano, a dealer in Independence, Missouri, is experiencing difficulty in obtaining affordable cars for his lot. He and his daughter now have half the number of vehicles compared to before.
Some of their competitors have an advantage as they can provide financing to buyers with poor credit. Alex Yurchenko, chief data officer for Black Book, suggests that it is a good time to buy a used car if necessary.
Due to rising costs of essentials such as gasoline, groceries, and utilities, many of Catalano’s customers are struggling to afford new or slightly used cars. Some customers are even using their tax refunds to make ends meet instead of purchasing a car. According to Catalano, a used car is now becoming more of a luxury, as affordable cars at $3,000, $4,000, and $5,000 are in high demand but not readily available.
The reason for the shortage of vehicles and increased prices is due to the basic principle of supply and demand. The cost of new cars has skyrocketed, with the average price reaching almost $48,000 in February, according to Edmunds. This high cost puts new cars out of reach for many consumers.
Despite a slight increase in the supply of new vehicles, they remain scarce and expensive due to the lingering impact of pandemic-related supply shortages, which have led to a shortage of computer chips. As a result, the number of new-car sales fell by about 3 million below normal levels last year, leading to fewer trade-ins and, in turn, fewer used vehicles available for sale.
Analysts advise buyers who can afford it to purchase a used vehicle soon, as used prices are rising again. However, bargains are difficult to find on used lots these days. Even with the price drops of the past year, the average used vehicle remains about 35% higher than it was before the pandemic, with the average price reaching $20,425 three years ago.
Increase demands for Autos Industry
Stimulus checks from the government led to an increase in demand for autos, causing the supply of used vehicles to drop and prices to surge. Additionally, there was a shortage of affordable new vehicles as automakers used their limited supply of computer chips to produce more expensive SUVs and pickups. This trend led to increased demand and higher prices for used vehicles.
This has left people like Carol Rice struggling to find an affordable used vehicle. Rice, who is retired and cannot afford a new vehicle, searched for six months to find a used small pickup for her farm near Carbondale, Kansas, but found few options that fit her budget. Last month, she finally found a 2003 Ford Ranger on Catalano’s website that she liked and could afford, and purchased it for $7,700. Although the vehicle is 20 years old and has 140,000 miles on it, it is in good condition and has the all-wheel-drive feature that Rice wanted.
According to Carol Rice, the 2003 Ford Ranger she purchased from Catalano’s website was a good deal. However, many analysts do not predict any significant decline in used vehicle prices in the near future. Catalano himself believes that prices will remain high for the next year or two.
The situation is complicated, as some factors such as fewer trade-ins, lower leasing, and fewer fleet sales by rental car companies can keep supply down and prices up. Conversely, pricier vehicles and higher loan rates could decrease buyer demand, and eventually, dealers may be compelled to cut prices.
Amy Gieffers, a senior vice president at Vroom, points out that predicting price movements is challenging because of the competing forces in the market. However, Charlie Chesbrough, a senior economist at Cox Automotive, and Yurchenko of Black Book, believe that used-vehicle prices will continue to rise throughout the summer and then drop slightly due to the usual late-year depreciation cycle.
Chesbrough had originally predicted that higher loan rates would discourage buyers from both the new and used markets. Instead, sales in the United States have been strengthened by the strong demand from affluent buyers for expensive, late-model used vehicles.
According to industry experts, buyers are struggling to find affordable used vehicles due to a combination of factors, including pandemic-related supply shortages, surging prices of new cars, and a lack of computer chips. As a result, the average used car price remains about 35% higher than before the pandemic.
Although some analysts predict that prices could decline slightly later this year, others believe that prices will remain high for the foreseeable future due to ongoing supply constraints. Buyers who can afford it are advised to purchase now, as auto loan rates are expected to continue rising.
Despite the high prices, many affluent buyers are still purchasing late-model used vehicles, with some paying cash to avoid higher interest rates. Sales are expected to remain strong, even if the economy were to slide into a recession.