A Used Car Is Now $30000 Plus
Dealerships with no new cars to sell suddenly didn’t have traded-in cars to resell or offer for auction, either. Nor did rental car companies have old, retiring vehicles to offer. This meant the supply of used cars shrunk so drastically that basic economics took over, pushing the in-demand vehicles’ prices higher.
We now have a used car supply crisis that has raised the average price of a used auto to over $30,000, according to CarGurus data. That same data showed the average price at the end of December 2020 at $22,837 and jumped to $30,620 by the end of December 2021near where average new-vehicle transaction prices had risen to pre-pandemic.
Used Cars Will Get Older
Many car makers are saying that it will be Q3 2022 before they are likely to see production back to 100 per cent of what it was previously and even then, they will have to fulfil the existing order book.
In the UK alone finance houses and leasing companies have tens of thousands of new cars in their order banks and it may take a few more months before those new cars arrive and the used cars move back into the used markets.
With an uplifted number of used cars coming off finance another year older due to contract extensions, or simply three months older due to the payment holidays consumers were offered in 2021, we see the average age of many used cars in the market continuing to rise in the coming year.
However, demand and prices are likely to remain high during 2022 and will only start to soften if volumes get to the stage of supply exceeding demand.
We believe that this may well be felt into 2023 and in the meantime, vendors will continue to innovate to best represent their white label partners and manage their own risks in a market which continues to prosper.
What That Means For Drivers
Among the implications of such a drop, KPMG says:
- Over half of these overpriced vehicles are financed, posing potential risks to lenders and investors in the $1.4 trillion auto-loan business. Moreover, these buyers will have little to no equity in their cars, making future car purchases unaffordable.
KPMGs analysts cant say when price drops might begin, noting that inflation could be with us a long time. The current political situation makes government solutions hard to predict.
The report outlines four possible trajectories for used car prices. All show equilibrium returning between October 2022 and October 2023, potentially leaving millions of Americans upside down on their used car loans.
We expect the market to anticipate the turnaround in the new-car supply situation ahead of time and begin repricing used cars before new-car lots are full and used-car demand returns to normal, the report notes.
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Theres little good news for shoppers in the projections. We would note that the average car on American roads is over 12 years old now. So many who bought late-model used cars may keep them long enough that a crash in trade-in value wouldnt affect them much.
But, if you can, this remains a good time to fix your existing car and keep it running until prices stabilize.
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What To Expect In The 2022 Used Car Market
Car prices have been surging for over a year, as the pandemic disrupted supply chains and caused shortages in critical auto components like semiconductors, resulting in a lack of new vehicles hitting the lots.
But as bad as things are for new car prices, things are even worse for used vehicles. The lack of new cars available has created an absolute frenzy in the cheaper used car market. Since March of 2020, used car prices are up a staggering 39.8%, according to the U.S. Bureau of Labor Statistics Consumer Price Index. During that same period, the BLS inflation measurement for new car prices is up 8.9%, while overall, U.S. inflation is up 6.3%.
Theres just not a lot of cars out there, and if you go in and walk some lots, youll notice that its not there, Jim Lyski, executive vice president and chief marketing officer for CarMax, tells Fortune. The consumer doesnt really have their first pick right now, and so theyre going down to their second pick, third pick, or they dont want to wait for production to release new vehicles, so theyre going into the used car market.
And prices are still on the rise, observes Lyski. He says prices have persisted in moving up over the last few weeks, estimating the average purchase price of cars are inching up $100, $200 a week, he noted late last month based on CarMaxs vantage point.
Here Is The Second Hand Price Change From November To December
Brand Model M. Year November 2020 December 2020 Change
Hibya News Agency
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Fall Of 2022 Is When Used Car Prices Will Drop
As we survey the landscape of the automotive industry, it seems clear that the fall of 2022 represents the most likely time for used car prices to drop in 2022. Traditionally the fall and winter months are when used car depreciate the most. This seasonality, paired with increases in new car production, and likely increases in interest rates, should ultimately drive some downward pressure on used car prices.
One factor that we cannot account for is the potential for government tax incentives on electric vehicles. While Congress has yet to pass a bill that contains EV tax credits for 2022, there is a lot of speculation that they will. Proposed credits would significantly increase consumer demand in new and used vehicles, and if this were to happen, it may very well offset the downward pressures on used car prices.
There are also a lot of questions surrounding new car production. While manufacturers such as Toyota have published press releases signaling theyre through the worst of their manufacturing woes, only time will tell if thats actually true. Boston Consulting Group thinks it will be 2025 when new car production meets demand, so questions still remain about how much new car inventory will be available in 2022.
What Could Happen Next
History tells us the current frenzy in the used-car market will come to an end, KPMG says. As the microchip shortage and other supply chain problems ease, the massive auto manufacturing machine will shift back into high gear, and dealer lots will again be full. When that happens, the used-car market could collapse.
If the normal relationship between new and used car prices is restored, KPMG says, That would imply a drop in used-car prices of about 30% below where they are today. The drop could be less dramatic if inflation persists.
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The Average Used Car Payment Is Now Over $500
Because those shopping for a used car may have even less cash just laying around than new-car buyers, those buyers will need loans. With a favorable rate of four percent and five years to pay it off, that means the monthly cost for a used car is over $530.
That’s also not including taxes, fees and premium insurance required when taking out a loan that long, nor thinking about the future maintenance costs over those five years. The cost of a late-model used car is now edging closer to $1,000 per month and outside the range of most buyers who are in that market.
Strong Prices In 2022 Next Year Market Will Soften
After dealers reported a quiet Covid used car Christmas our first auction of the year generated a conversion rate of 85 per cent and saw a strong demand, although prices werent quite as hot as they had been in Q3 and early Q4 2021.
During 2022 the entire market will hinge on the dynamics of supply and demand. With no new signs of major sources of stock coming into the market dealers will have to compete against one another to buy the stock that is available which keeps prices strong.
Dealers have to keep reviewing their stock and decide whether to stick with what they have on their forecourt or twist and compete for fresh stock at the current prices.
The latter approach looks to be the most progressive option and buyers are becoming more confident to bid more money for cars as consumers understand they are in short supply and are more expensive as a result.
The current market will continue throughout 2022 we believe. 2023 is likely to see used car supplies increase and prices start to gently soften which is where dealers want to be more cautious to avoid stock owing them money.
Alex Wright, managing director, Shoreham Vehicle Auctions
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When Should I Sell My Used Car
If used car prices are likely going to continue to appreciate, it would make sense to hold onto your used vehicle and wait to sell it. That being said, our best recommendation is to track the value of your used vehicle weekly. To do this we encourage you to use the value my vehicle section of your YAA account. You should also get quotes from Carvana, Vroom, CarMax, etc.
There may be small fluctuations in price from week to week, but we expect the price of your vehicle to gradually increase overtime. The indicator for when to sell will be when you see week over week declines in the value of your vehicle.
What The Latest Used Car Data Says
According to Blackbook, used car prices are up 0.48 percent this week with compact and mid-size cars gaining more rapidly than trucks and SUVs. Last week, the overall market was up 0.38 percent.
The only segment that declined was sports cars. This likely has to do with the fact that sports cars are usually more popular during the summer months, and buyers tend to do their shopping in spring. Sports cars have been on the decline for 13 consecutive weeks, which is a stark contrast to the overall used car market that has been increasing for four weeks straight.
According to data from Cars.com, the median listing price for a used car increased 34.3 percent in the 12 months ending in August. At that time, used cars held a median value of $23,994. Most of that increase came between March and June when the median price rose 27.3 percent.
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The Data Suggests Another Peak In Used Car Prices Is Coming
Used car prices have surged by over 45% within the past 12 months.Inflation is getting so serious that a depreciating asset is now appreciating.
The prices for vehicles that are 28 years old have fluctuated a lot since May 2020. A big price run came in May and July 2020 before falling off near pre-pandemic levels in the second half of the year.
In 2021, the first quarter saw another round of value hikes and surpassed the previous COVID-19 pandemic peak. After decreasing for a few months, another peak is coming.
The good news for drivers is that another downslide is bound to occur. The only question is when that will happen and how much lower costs will be.
When Might Used Car Prices Start To Come Down Again
Used car prices may not go down much until new vehicle manufacturing picks up tremendously. That has been slowed by several factors during the pandemic, but especially by a worldwide shortage of computer chips. Those microprocessors are vital in todays new models, providing the brains for our increasingly complex vehicles.
In this report, Goldman Sachs features a chart showing how smart our cars have become over the years, explaining that a typical 2021 model has 298 computer chips inside it. Until enough new chips can be made, new car manufacturing will remain hobbled. Sachs predicts low inventory of new cars will persist through the middle of 2022.
So, use caution take care of your ride because consumers in search of a used automobile may be in for a continuing steep grade ahead in used car pricing.
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When Will Used Car Prices Drop In 2022
As youre well aware, used cars arent supposed to appreciate, however in 2021, used car prices have increased by nearly 50% across the industry. That has led many of us consumers to utter a question we never thought wed have to say, When will used car prices drop?
In normal times, used car prices are always dropping , however as the chip shortage and supply chain challenges have reared their ugly heads, weve seen some used cars appreciate to levels that were once incomprehensible. Many one to two year old used cars have sold for more than their original MSRP its truly insane!
In this article we present to you our best bet as to when used car prices will drop in 2022. And yes, we do think there will be some sort of price drop in 2022. This article is based on many data sources, such as this report from Boston Consulting Group on the chip shortage, a recent white paper from KPMG, and ongoing data analysis from the team at Black Book.
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Plenty Stands In The Way Of A Car
Cooling the car markets down won’t come easy. Port congestion has only marginally improved over the last month, Goldman said, signaling it could take longer to bring foreign auto supply to the US market.
The Omicron variant also adds a major risk to the supply recovery. If the variant sparks factory shutdowns in East Asian chip hubs, the rebound in car production could be further delayed. Even if semiconductor production slows half as much as it did during the Delta wave, the hit to auto manufacturing would raise new car prices as much as 2.7%, according to the bank. Used car buyers would take an even bigger hit, with values ripping another 7% to 8% higher, Hill said.
There is some good news amidst the car-price chaos, the economist added. Key semiconductor suppliers spent big building out their production capacity in the third quarter and investment levels now sit above pre-crisis levels. While it typically takes between two and three quarters for capital investment to translate to boosted chip supply, Goldman expects the capacity build-out to fuel “improved microchip availability an rising auto production” in the second half of 2022.
Relief for car shoppers is on its way, it’ll just arrive later in 2022. Even then, prices have a long way to fall before nearing pre-pandemic levels.
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Both Used And New Cars Are Going To Cost Even More In 2022 Goldman Says
- Car prices will keep climbing into 2022 as the chip shortage lingers, Goldman Sachs said.
- The bank expects prices for used and new cars to peak in the first and second quarters, respectively.
- The Omicron variant risks driving prices even higher by forcing chip factories to shut down.
If you waited for prices to fall before buying a car in 2021, Goldman Sachs says you’ll have to wait a little while longer.
Inflation has lifted prices across the board over the last 12 months, but the car market has seen some of the biggest increases. Prices for used cars and trucks have been among the biggest drivers of inflation in 2021, with costs soaring 31% over the last year. New vehicles have seen a smaller gain of 11%, but the global chip shortage has left dealers struggling to restore supply. New-car buyers couldn’t find cars to buy, and used-car buyers found it increasingly hard to afford them.
Relief won’t come for at least a few more months, Goldman economist Spencer Hill said in a recent note. Prices for new cars “remain unsustainably low” compared to used vehicles, signaling there’s “more inflation in the pipeline.” Used cars from two years ago are selling for 10% more than their 2022 counterparts on average, despite having older technology and more mileage, according to the bank’s analysis of Kelley Blue Book values. As such, new car prices will have to overtake used values before the market returns to pre-pandemic norms.
Used Truck Suv And Van Prices 2021
Not all used cars are appreciating equally. Used trucks, SUVs, and especially vans are increasing at rapid rates. Look at the data provided by Manheim and Black Book below.
Black Book data shows that just last week used compact van prices increased over 2.5%. Thats UNHEARD of. These are your Ford Transit Connects, Mercedes-Benz Metris, Ram ProMaster City, and Nissan NV200.
Compact and sub-compact crossovers increased nearly 1% week-over-week.
As you can see, the data from Manheim also shows vans leading the way in terms of price increase.
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Average Used Car Prices Soar To Over $30000
With prices this high, the average person might not afford a used car.
Just when you think we’re crawling out of hot water as semiconductor supplies rise and auto plants return to near normal production, we get hit with more bad news. Due to the perfect storm that caused the domino effect in the new-car supply chain, used car prices have jumped to an average over $30,000. It gets worse: We probably won’t come out of it for another two to four years unless something drastic happens.