Why Car Prices Are Going Up
Global supply chains were disrupted during the pandemic last year, and many car manufacturers did not produce as many vehicles as they normally would. The influx of stimulus checks and mass avoidance of public transit caused more people to buy cars, further limiting the available car supply.
Since 2020, there has been a global chip shortage causing massive delays for automakers. The average car can have hundreds of these chips, which explains why automobile production has slowed down even as other industries have begun to ramp back up.
Many Vehicles Are Selling For Thousands Over What They Cost New Blame The Chip Shortage
LAWRENCEVILLE, N.J. The 2019 Honda Civic that kicked off a used-car auction earlier this month would have been nothing special before the pandemic. But as automotive dealer Brad Wimmer watched, the online bidding quickly became, to quote him, bananas.
As a new car, the Civic would have had a sticker price of around $21,000. But within seconds at the wholesale auction, the two-year-old model, with 4,000 miles, sold for $27,200.
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.
For Wimmer, owner of the dealer AutoLenders, such sky-high prices have become the norm at the weekly auction, where dealerships nationwide buy and sell used cars.
The unraveling of the used-car market is the most tangible result of a problem that has plagued the global economy for the past year: a dire shortage of computer chips that has hobbled auto manufacturing.
Its going to be really, really tough for consumers to buy a vehicle in 2022, a used or a new car. Youre going to have to pay a very high sticker price, Wimmer said as he watched the auction, which used to attract more than 1,000 car dealers to Manheim, Pa., every week but since the pandemic mostly operates online.
‘at This Time We Are Not Accepting Outside Financing’
Heres something I had never encountered before when buying a car: One salesman told me they didnt want to do business with me if I already had financing from my bank or credit union .
I eventually bought from a different dealer. But they also almost killed the deal because I was using outside financing. I had to cajole them into accepting a check from a credit union where I had already secured financing at a rate that I assured the dealership they were not going to be able to match.
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Capitalize On Your Trade
While dealerships aren’t offering much in the way of discounts or negotiating as much on prices as they have before, trade-in values for trucks are “through the roof” and car trade-ins are also high, Len Stoler Automotive Group President Barry Stoler said.
“What lose on discounts they gain on the trade-in, because those values are so high,” Stoler said.
Even vehicles with higher mileage may fetch more than you think. The average amount paid for autos with mileage between 100,000 and 109,999 rose last month by 31% to $16,489 from $12,626 a year ago, according to data from Edmunds.
Trucks topped the list of the biggest year-over-year increase in average prices in that high-mileage category. For instance, the Chevy Silverado 1500 sold for an average $26,914 in June, a 49% jump from a year ago.
Even if you don’t think the car you’re trading in is worth much, it may yield more than you anticipate right now amid elevated prices. And that’s where your negotiating skills can come in handy: You may not be able to get the price down, but it’s possible you could push for more for your trade-in.
“If you have a trade-in, that sweetens the deal,” Drury of Edmunds said. “The dealers want that trade-in.”
Even cars that are nine years old have average values that are up about 30% from a year ago, Drury said.
When Will Used Car Prices Go Down Again
Used vehicles cant appreciate forever, can they? We dont think so. Used car prices have increased in price because of the ongoing chip crisis and supply chain issues plaguing automakers. Expectations for when new vehicle production will return to pre-pandemic levels vary based on who you talk to.
From our sources, we expect that new vehicle production will return to pre-pandemic levels in the third or fourth quarter of 2022. The other question that is top of mind is, if automakers will produce as many vehicles as they did in the past?
Weve heard from the chief executives at multiple automakers who have said they will not go back to stocking their dealerships will hundreds or thousands of cars. Instead, they will retain a business model where there is less supply because theyve found it to be more profitable.
Does that mean used car prices will continue to appreciate? We dont think so.
Automakers may stock their dealer lots with a lesser supply of inventory, however there will still be enough new vehicle supply to offset the craziness we are currently experiencing in the wholesale and retail used car market.
Our expectation is that used car prices will fluctuate and generally increase between now and the third quarter of 2022. At that point, we would not be surprised to see a consistent depreciation of used vehicles like we have seen in pre-pandemic times.
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Motoring: Tips To Follow When Purchasing A Used Car
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Second-hand petrol and diesel car prices continued to rise in October for the 19th consecutive month, according to AutoTraders Retail Price Index. The increase was the largest monthly jump with costs up by 21.4 percent in September.
When Will The Madness End
There is good news. Prices seem to have peaked in May and are heading back to Earth.
Between May and June, wholesale car prices for the first time since December, suggesting that demand and supply are on a path toward some kind of equilibrium, Cox’s Reynolds said.
She expects that retail prices will soon follow, and that shoppers will start to notice prices on car lots gradually dropping by the fall. The pandemic-induced car-buying frenzy tapering off partially explains the shift, she said.
But the supply crunch brought on by the chip shortage isn’t going away anytime soon, meaning it could be quite a while before shoppers see used-car prices they’re accustomed to. Even once new models are back in stock, the secondhand market won’t snap back to normal overnight, Drury said.
His advice to car buyers: “I’d say give it at least six months. And in all honesty, if you can hold off for an entire year, you’re better off with that.”
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How To Value If Its A Fair Deal
The only way to know if youre getting a fair deal is to get the out-the-door price from the seller and then compare that to the vehicles value. To get the out-the-door price follow this guide:
To know if the vehicles price is fair, we encourage you to run the VIN through the YAA vehicle valuation page and to also get a quote from Carvana to see what they would pay to buy the car right now. If the Carvana quote is close to what you are paying for the vehicle, then its likely a pretty fair deal.
Midstate Used Car Prices Up 25% But Growth Is Slowing
Who would have thought one of the best investments someone could have made in 2020 would be a used car? They used to do nothing but go down in value, but not anymore.
Prices have steadied in terms of the growth. Theyre still a lot higher than they were a year ago, Chris Basso, Carfax spokesperson, said.
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The Big Question Mark Right Now Is How Long This Will Last
There is no denying that some prices are rising at a quicker clip than they have in recent years the big unknown right now is how long this will go on. The Fed and the White House are betting that the current level of inflation is transitory, meaning this is a temporary bump as the economy rebounds from the pandemic, and soon things will settle back down.
In testimony before Congress in June, Powell laid out the factors contributing to recent inflation increases, including falling prices at the start of the pandemic, supply bottlenecks, the pass-through of oil and energy prices, and increased consumer spending accompanying reopening. I will say that these effects have been larger than we expected, and they may turn out to be more persistent than weve expected, but the incoming data are very much consistent with the view that these are factors that will wane over time and then inflation will then move down toward our goals, he said.
The personal consumption expenditure price index, which the Fed uses as its main gauge of inflation, ticked up slightly less in May than economists expected, which could be a signal that the pace of price increases is slowing. However, its too early to tell.
Some more extreme corners even warn that the US could see runaway hyperinflation like whats happened in places such as Argentina and Venezuela, where the value of their currencies has declined rapidly and its nearly impossible for peoples paychecks to keep up with skyrocketing prices.
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Prices are up an unprecedented 25% for all used vehicles, in the Midstate as well as nationally, compared to this time a year ago. Used truck prices are up 17% in the Midstate and 13% nationally.
Basso says the higher gas prices could be an influence on more consumers looking for smaller vehicles rather than trucks right now compared to six months ago. However, he says the average truck also just costs more than the average vehicle, too.
Nearly $38,000 for the average used truck in the Midstate compared to $24,000 for the average used vehicle overall, including both cars and trucks. No one can be sure exactly where prices will go from here, but a few things are clear.
At some point, the supply will meet the demand. Therell be more cars available, both new and used, for consumers to buy, Basso said.
Basso says if people can wait on purchasing a used car, it is probably worth it. However, for those who cant wait the advice is similar to navigating a hot housing market.
Despite the difficulty in finding the vehicle you want, you dont want to panic buy and rush into it. Make sure you take your time. If something doesnt seem right, pump the brakes, Basso said.
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How Long Will Used Car Prices Keep Going Up
Although our crystal ball has been notoriously cloudy here at YAA, we feel confident in saying that used car prices will continue to increase well into 2022. Even when automakers get production back up to speed for new vehicles, there will be lingering effects from this period of time where they have not been able to produce at expected capacity.
Also, the price to produce new vehicles has gone up. As a result of the chip shortage , we expect MSRP on new vehicles to be considerably higher than before. Why? Because the manufacturers costs are increasing, and they will likely pass that along to the consumer. As a result, the demand for used cars will continue to be high because used cars will be the only attainable price point vehicles for many people.
For these reasons, we think week over week, and month over month used car price increases will continue for at least another 12 months.
More Used Cars For Sale But Prices Still Rising
After a year of shrinking inventory, Americas used car dealers ended September with more cars for sale than they had at the end of August. But prices continued to rise.
According to Cox Automotive, there were approximately 2.3 million used cars for sale at the end of September. That compares to 2.27 million at the end of August.
Cox Automotive is the parent company of Kelley Blue Book.
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Analysis: Why Used Car Prices Are Set To Rise Further
Paul Booker has been advertising his BMW 320d, a 2012/62-reg Luxury model with 85,000 miles, on a leading website for several weeks but had few enquiries.
He lives in south London and believes the expansion, this October, of the citys Ultra Low Emission Zone from central London to much of the North Circular and South Circular roads is to blame. Its in very good condition and Ive priced it at £6700, he said. However, Im sure buyers are being put off by it being an older diesel car that is penalised when entering the ULEZ zone.
The penalty he refers to is the £12.50 daily charge applied to cars that fail to meet the ULEZ emissions standard. For petrol models, the standard is Euro 4 , and for diesels its Euro 6 . The ULEZ daily charge for non-compliance is in addition to the congestion charge and the AA has warned that up to 350,000 motorists could be affected.
Your Overall Life Might Be A Little More Expensive Right Now
The price of the stuff we buy changes all the time for a variety of factors, from supply chain issues to our changing habits.
The pandemic, of course, meant a disruption in supply chains and habits. All of a sudden, millions of Americans were stuck at home, hoarding toilet paper and clearing grocery store shelves. Items we might have once purchased at restaurants, we tried to recreate at home with ingredients from the supermarket. And it became increasingly important to give our homes, where we spent a disproportionate amount of our time, an update to make them more livable. Our demand led to shortages in everything from pasta to couches. Covid-19 wreaked havoc on the supply side as well, as the virus spread among employees at meat plants and garment factories alike.
To look at whats happened to prices for a number of goods, we assembled our own little shopping basket. For the most part, prices went up, according to consumer price data from NielsenIQ, which tracks US checkout prices at a wide variety of retailers, as well as supplementary data from the Bureau of Labor Statistics.
After toilet paper became readily available and people stopped stockpiling it as much, its price only rose about 3 percent from last year. Staples like milk and bread rose just slightly, 1.6 percent and 1.3 percent, respectively.
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Consider A Lease Buyout
If you’re nearing the end of your lease, you may be able to buy it out for less than what you’d pay for the car if it were sitting on a dealer’s lot right now.
This is because the residual value the vehicle’s worth at the end of the lease was established when you signed the lease several years ago.
“Those leases started before anyone knew there’d be a pandemic or a chip shortage,” Wiesenfelder of Cars.com said. “There’s a good chance that the market says the vehicle is worth more than what it was predetermined to be.”
If you consider going this route, be sure to know your state’s sales-tax rules that would apply, because that can add to the cost of the buyout, according to Cars.com.
More Better Safety And Emissions Gear Can Raise Prices
In addition, prices are up because vehicles today come with a high level of standard safety and emissions equipment. Some of that is required, like backup cameras .
But theres also a growing number of optional advanced driver assistance systems, like automatic emergency braking to avoid front-end collisions, and high-end infotainment, with video displays.
Average transaction prices topped $40,000 for the first time, in the third quarter of 2020, said Reynolds of Kelly Blue Book. That was when it was already obvious that consumer demand for new vehicles had come back much faster than new-vehicle production could ramp back up.
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Why Are Car Prices Up
Car prices are soaring right now for a number of reasons. Per CNN, many car dealers lots have fewer cars than they normally would have. So theyve raised the prices of cars they do have. Since there are fewer cars available, the cars there tend to be rarer, jacking up their price.
- Theres also a higher demand. Sales are rising because people need to drive again after months of lockdown and quarantine. Car dealerships that were closed during the pandemic have also opened up, and theyve jacked up prices to help account for the losses, according to CNN.
- Consider inflation as well. According to NPR, consumer prices for everything rose 5% in the last 12 months, which is the sharpest jump since August 2008 when prices jumped 4.2%.