How much has the price of used cars really jumped?
The price of used cars has risen by double digit percentage points over the last two years. Inflation is at record levels and used cars have been one of the most severely affected sectors. In this post, I’m going to pull some research together. Hopefully I can give you an idea how much used car prices have actually risen.
We’re also going to look into what’s causing used car prices to rise, how much used car prices are going up and when we can expect the price of used automobiles to come back to Earth. Lower income families and people on fixed income are having a hard time dealing with this cost on top of rising grocery prices and gas prices. Finding reliable transportation cheap is essential to people trying to make it back and forth to work.
My main job title is as a “technician” at a used car dealership. It only takes five minutes in the used car repair industry to realize you’re gonna be way more than just a “technician”. It’s by no means even comparable to being say a flat rate tech at the dealership.
Almost every car that ends up on a used car lot comes from auction, new car trade in or bought outright if the price is right. A lot of new car dealerships will wholesale the cars they take on trade because they’re not worth sinking money into for them.
So, do new car trade in’s have an effect on used car prices?
There is a global chip shortage that is causing a lack of new vehicle purchases. Considering trade in deals account for 43% of new car purchases, this lack of new vehicle purchases is causing a supply issue with used cars. Supply and demand tells us that if supply is low and demand for used cars is high, prices will rise. Wild inflation plays a big part also, but it seems the reason used cars have been affected so much is due to the global chip shortage. According to this article, the shortage in auto chips is only going to get worse.
A scenario like that will only serve to make the used car prices go even higher. As of January of 22, US Commerce Secretary Gina Raimondo was quoted as saying “We aren’t even close to being out of the woods”. She went to say that “The semiconductor supply chain is very fragile and it’s going to remain that way until we can increase chip manufacturing”
My research suggests bad news for used car prices in the medium term.
According to Jan-Philipp Gehrmann, head of global marketing for the advanced analog business at NXP, it can take 6 months to make just one chip. According to that same article, experts don’t expect the auto chip shortage to end until the end of 2022 or early 2023. That does not mean the damage done will end then. There will be lasting effects on the price of used cars.
The components in an average chip, from the intellectual property used to design it to the blank wafers used to build it, can travel 25,000 miles and cross over 70 international borders before a customer gets its hands on the final chip, according to a report released by the Global Semiconductor Alliance in 2020.
Quote taken from an article titled “How Much Longer Will it Take to Fix the Chip Shortage?”
I’m no expert on used car prices, but research goes a long way.
My research on the price of used cars in 2022 is obviously based on many publications from experts in the industry. I’m far from a “know it all”, so to give you data and statistics I have to research myself.
So in the next part of this post I’ll give you some stats and graphs that should help explain how much used car prices have gone up.
The above graph provided by Fortune shows that used car prices have jumped by 40% since March 1, 2020. That date is widely considered the start of the COVID pandemic.As you can see from looking at the graph above, it was around April of 2021 that used car prices spiked to all time highs. The global auto chip shortage traces all the way back to the first half of 2020 but the effect on the price of used vehicles were delayed. It’s likely this is because the new car dealerships had a stock of inventory that they were able to sell before seeing the shortage hit their sales and restrict supply.
Wholesale used cars like those sold at repossession auctions have gone crazy.
To give you a little perspective on this, according to The Washington Post, sometime in late 2021 a 2019 Honda Civic that would have sold for $21,000 brand new went for $27,200 with 4,000 miles on it. The following quote from the article about sums it up.
Soon after, a Nissan Rogue fetched what it would have cost new in 2018. A three-year old Toyota Camry with large dents and scratches on its hood sold for $14,200, nearly twice what it would have brought just a few years ago. And a 2015 Kia Sorento sold for $12,600, a staggering amount for a six-year-old car with 83,000 miles.
If you’d like to read more about this trend, visit the article yourself.
Surprisingly, wholesale prices for cars have risen more than used trucks.
When I started my research for this post, I thought I would learn that used trucks had risen much more than used cars. From my experience, that’s the way it seemed. According to Forbes and many other reputable sources, cars have actually risen almost 37% from 20-21 where trucks had risen 26.4% in the same timespan.
This came as a major surprise to me, especially with the demand that I see for used trucks and seven passenger SUV’s. Especially since at the time, fuel was at multi year lows unlike now where gas prices are averaging over $4.00 a gallon in the US.
Used Car dealers pass this wholesale price increase on to the buyer.
I’ve said many times before, I work at a used car dealership so I’m familiar with the standard practices of the industry. I can tell you first hand that when prices at the auction go up, so do prices on the used car lots. Basic economics, in order to remain profitable the used car dealers will have to raise prices the same percentage or more to account for the uncertainty of future prices.
A majority of used car dealerships are small, independently owned operations and a loss for just one year could be enough to close them down. Not every used car dealership has the resources or capital that dealers like the ones on this list have. The ten used car dealers featured in that post are million or more dollar operations. A used car dealer like that can weather a storm for several years before risking folding.
As you can see there are used car dealerships out there with inventory in the hundreds and thousands.
When will used car and truck prices go back to normal and should you wait to buy a vehicle?
When you consider the cause of the price increase in used cars and trucks, logic tells you that waiting to buy a car would be a good idea. Right now, dealer prices are higher than normal due to the chip shortage and lack of inventory. In a fairly short period of time, once production and distribution ramp back up that will change and buying a car will be much cheaper.
When waiting isn’t possible, there are options to consider. If you own a used car that’s in reasonably good shape, trade in value on used cars is also much higher than what it was before the automotive chip shortage crippled manufacturers and pushed the value of used cars to never before seen territory. Given the opportunity to trade in your used car for more than what it’s technically “worth”, why wouldn’t you take advantage of that?
