- Right now, used-car prices are up an average of 14 percent compared to the spring of 2020, with pickups up the most—27 percent. The average price of a used-car purchase is now nearly $24,000.
- That's not as bad as new cars, which are going for an average of more than $40,000, and the selection on dealer lots is reduced because of the COVID-19 pandemic, the current semiconductor shortage, and high demand for vehicles.
- Higher-mileage vehicles may be the answer for buyers looking for a good deal on a vehicle, considering the durability of many vehicles on the used market.
A year ago, as this bad trip known as the coronavirus pandemic did a Freeze Dance number on the economy, the auto world became a breeding ground of unknowns. Used cars emerged as one of the greatest unknowns, having what Automotive News called a "strange moment." Wholesale and trade-in values had plummeted. But while no one was buying new cars, retail prices were off by just 1 percent in April 2020, leaving dealers unsure of how they should even value used cars.
By July, used-car values found their legs. And by October, used-car prices had made record-breaking leaps. Now, six months later, prices still hover at altitudes that require supplemental oxygen. CarGurus' tool for tracking used-car price trends shows the average price of a used car is $23,723, up almost 14 percent compared to this time last year. That's more than 10 times the 2020 rate of inflation. Every vehicle segment has seen gains, the smallest bump being about 5 percent for hatchbacks and wagons. Pickup values rose a whopping 27 percent, and vans—that's right, vans—are up more than 20 percent.
Remember when Reddit took its talents to GameStop stock? The Manheim Used Vehicle Value Index looks like the GameStop stock chart. If you have a trade-in or used car to sell, now is the time. If you're a used car bargain hunter, your hunt will take longer and lead you farther afield. So, why are values stuck in the mesosphere, when will the market get back to normal, and where is the best place to look for a steal?
Values remain high because the used market continues to endure same issues that caused the price run. New car production isn't at full strength thanks to shortages of materials as varied as steel, semiconductor chips, and seating foam. "Combine this with manufacturers and dealers looking to 'right size' their inventories, sales lots are less crowded than before the pandemic and offering buyers a more limited selection of new vehicles," Sam Fiorani, an AutoForecast Solutions, said. Without such resupply, Cox Automotive said new-car inventory at the end of March was 59 days, 41 percent lower than March 2020.
Limited stock, as well as an increasing number of standard features and higher materials costs, have supercharged new-car prices. In July 2020, Kelley Blue Book pegged the average price of a new car at $38,378. In December 2020, that number crested $40,000 for the first time ever. Last month, the figure had risen further, to $40,472, a 4.3 percent increase over one year ago. Furthermore, as automakers give up on subcompacts, hatchbacks, and sedans here, there are fewer new vehicles available below $30,000.
All of this continues to drive car buyers to the used market. At the top tier of the pre-owned market, CPO sales are up 14 percent in the first quarter of this year compared to the same time in 2020.
However, fewer new car purchases mean fewer used cars to choose from. The National Automobile Dealer's Association's 2020 report said that nearly 42 percent of a dealer's used inventory comes from trade-ins on a new vehicle. On a cheerless note, moratoriums on repossession have been another constraint on the wholesale market, shrinking stock that goes to auction. Dealers scouring new sources of used inventory have flocked to auctions already grinding through decreased supply, and dealers are competing with one another and with online sellers like Carvana and Vroom.
This has left a lot more people chasing a smaller herd of used cars as the economy reopens, and people are ready to spend stimulus checks and savings from postponed big-ticket vacations. Also, spring traditionally uncorks the annual car-buying season, adding traditional price pressure to these new factors. Cox Automotive said used vehicle sales in March were up 117 percent compared to last year, sending used car inventory to 29 days at the end of March, 15 days below normal. Even the search term "Buy a used car" is hot. Last June it maxed out on the Google Trends chart, a measure of a term's popularity as a percentage of all searches in every U.S. state. The phrase has done so again three times since June, most recently last month. These are the only such instances in the past five years.
There are still bargains out there, lurking in a corner of the market many used car buyers typically avoid: vehicles with more than 100,000 miles. Both the novice and the savvy enthusiast used to view 50,000 miles as the bright line separating jewels from junk. But with vehicles having gotten so much better over the last 15 years, and absurd demand, dealers report that used cars with six figures on the odometer are finding good homes.
"The quality of vehicles has improved so much that a 150,000-mile Toyota Camry brings serious money," Fiorani said. And then there is the ridiculous rise in residual values on trucks, where a 10-year-old Ram pickup with 100,000 miles can still cost $20,000."
When will prices come back down? What an Edmunds analyst called "an unprecedented historical shift in the used vehicle market" is likely to continue. Cox Automotive predicts the used market will be short millions of vehicles through 2023, with elevated prices to match. J.D. Power believes. "We can expect these trends to continue for the foreseeable future, as even after the pandemic has passed, used car prices are likely to continue rising."
Fiorani isn't quite that pessimistic—or optimistic. Depending on your point of view. "In the window beyond the next six months, production should stabilize, inventories of new vehicles will rise, and demand will fall to a more normal rate," he said. "When that happens, used car prices will normalize."
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