Why Are Used Car Prices Still So High?
If it’s been a while since you shopped for a used car, brace yourself for the sticker shock. Used car prices have soared over the last three years, and experts believe the turbulent market will remain unstable. Many factors contribute to the instability of the used-car market. So, you might want to reconsider purchasing a vehicle in the coming months. If you need to buy a car, you’ll want to look at all your options carefully. If you make the right choices, you can still end up with a great vehicle at a fair price.
What Is Driving Used-Car Prices Up?
One significant event occurred when new car manufacturing stopped when the factories shut down in 2019. Most of the world reacted quickly to the widespread closures across industries. For example, businesses pivoted to telecommuting, restaurants pushed takeout, and grocery stores delivered to your door.
However, most of us still needed transportation. New car prices were still attractive at the start of the pandemic, but as inventory dwindled, dealerships realized supply chain issues were a big problem. Those supply chain issues had a domino effect. The first domino to fall was the used-car market.
Your new car options were limited if you needed a car in late 2019 or early 2020. If you were lucky enough to find a model you liked, it probably didn’t have the options you wanted. So, buyers turned to the used-car market, where it was possible to find a gently used car with low miles. You could also find the make and model you liked with your desired features, and you saved a little money too versus buying new.
Unfortunately, the used-car inventory began to shrink as a result. Used cars eventually head to the junkyard. With no new vehicles rolling out factory doors, stock naturally dropped. And the longer the shutdown dragged on, the more we saw used inventory shrink. Any time a commodity experiences supply problems, prices rise, which is what happened here. Be Prepared for more challenges through the remainder for this year
The leasing segment in the automotive industry also unintentionally contributed to the used-car shortage and rising prices. Leases generally last two to three years, at which point most lessees turn their cars in for a new leased vehicle. Before the pandemic, manufacturers offered incentives to returning lessees. As a result, it wasn’t uncommon to see zero-down lease deals with low-interest rates, free miles, and complimentary maintenance.
With no new cars to lease, lessees were faced with two options. Turn in their vehicle and find another used car or buy out their lease. Most people chose the latter because it made the most financial sense. But, unfortunately, used-car prices were at an all-time high that no one anticipated.
Lease deals estimate the value of your car at the end of its term based on budgeted miles and condition. That assessed value is what it costs you to buy out your lease. Fortunately for lessees, the cost to buy out their leases was much lower than the car’s actual value.
Many people turned a quick profit by buying out their leases and selling their cars privately. Others chose to keep the asset as the best and cheapest option.
The auto industry wasn’t the only industry that shut down. Microchip manufacturers also shut down and experienced the same inventory shortages as car makers. Unfortunately for automakers, they represented less than 10% of the microchip market. As a result, microchip manufacturers focused on supplying their larger customers that made cell phones, computers, and other electronics.
Modern cars rely on microchips to operate various systems, from infotainment to steering and braking. However, the chip shortage slowed the auto industry’s manufacturing restart and, in most cases, led to automakers focusing on higher-end models with higher profit margins.
The Future of Used-Car Pricing
Most experts agree that eventually, the market will return to normal, but when is still debatable. The price of new vehicles remains at an all-time high, and inventory levels have increased over the last year. Still, the lease market has dropped significantly, but insiders believe that the people that bought out their leases in the previous two years will eventually return to boost that segment.
Used inventory will continue to rise as manufacturing catches up to pre-pandemic numbers. Unfortunately, our current economy isn’t encouraging lenders to offer great rates. Before 2020, you could find rates between 0%-3% on new cars with slightly higher numbers for used vehicles. Today, that number sits between 3%-6% for new cars and is even higher for used models.
Until it becomes less expensive to buy new cars, used-vehicle prices will remain higher than usual. As a result, people who don’t need a new vehicle immediately choose to wait until the market stabilizes. However, if you need a car, the current situation doesn’t mean you still can’t find a great deal. We recommend you browse reputable dealers and take your time. If you do your research and don’t rush a sale, you’ll get a quality car at a competitive price.
Regional economies have rebounded differently to the used inventory shortage. For example, California led the country in leases. As a result, the state had more lease buyouts than in other areas where financing was the preferred method to buy. So, industry experts believe it will take California longer to rebound.
Conversely, areas such as Youngstown, OH, have recovered faster because more people opt to finance their vehicles.
Explore Used Cars in Youngstown Today
At Cochran Cars in Youngstown, OH, we have strategically restocked our used inventory, scouring auctions nationwide to find the best vehicles available. As a result, we have hundreds of vehicles from nearly every manufacturer. Further, our new-car sales program continues to grow, and we receive new vehicles almost daily.
We recommend you shop our virtual inventory to start your search. Then, once you find a car that looks good, visit our Market Street dealership. One of our friendly, professional staff will show you your preferred vehicle and let you take it for a test drive.