Why Are Used Cars So Valuable Right Now?
Across the nation, the used car market is booming. The trade-in value and selling price for used vehicles have hit an all-time high. And while fluctuations in used car sales year-to-year are common, the price surge over the last year is unparalleled. According to the U.S. Bureau of Labor Statistics, the selling price for used cars has jumped nearly 30 percent between May 2020 to May 2021. Currently, the average price for a used vehicle sits around a record-hitting $25,463.
So, what’s causing it?
To put it simply, the increased value can be attributed to the shortage of vehicles as a result of the pandemic. Now with coronavirus restrictions lifting, the demand for them grows more each day. Consequently, used vehicles have never been more valuable. For sellers or those looking to upgrade to a new vehicle, this is an incredibly profitable time.
But, why is there a shortage?
To start, the pandemic completely altered many lines of work, and the automotive industry was no exception. Global shutdowns directly impacted the rental car industry, as well as new car manufacturing, creating a domino effect on anything automotive-related.
The used car market relies heavily on new car manufacturing and the rental car business.
Manufacturers cannot produce pre-owned or 3-year old vehicles. This means the used car market relies on different avenues to generate its supply. Rental car businesses refreshing their inventories with newer vehicles is a major contributor. Typically, this is done every 12 to 18 months. But when travel bans hit the nation in March 2020, the rental car business took a major hit. This led to many operators rapidly unloading their existing fleet without purchasing replacements. Without this consistent cycle of gradual selling and replacing, fewer used cars entered the market.
Another way the used car market is replenished is through customers trading in old vehicles for newer ones or turning over leased vehicles. However, with record levels of unemployment and financial anxiety, many chose to stay with their current vehicle last year. Banks have also been more lenient allowing delayed car payments, which means fewer cars entering the market via repossession.
All this adds up to a significant amount fewer used cars ready to be resold. And while consumers were slower to buy cars in 2020, most of those who did chose to go the pre-owned route. According to data from Statista, there were nearly 3x as many used cars sold in 2020 as there were new cars sold.
The automotive industry can’t keep up with the new demand.
With cities reopening and the nation slowly recovering, many drivers are eager to get back on the road. Air travel restrictions increased the popularity of road trips in 2020, and it appears the trend will continue throughout 2021. The increase in demand for both new and used vehicles can also be attributed to historically low interest rates. This coupled with people receiving their stimulus checks and annual tax refunds means more consumers are ready to make bigger purchases now.
However, the current predicament is that there are 25% fewer used cars for sale now than there were last year, according to data from Cox Automotive. On top of this, there’s been a much higher demand for them due to financial factors and shortages created by the pandemic. According to Cox data, there was a 52% increase in used cars sold from a 30-day period in early 2020 compared to that same period in 2021. With fewer cars to sell, but growing demand, the value of them increases.
So, why don’t consumers just buy new vehicles?
There’s also a shortage of new cars on the market.
Currently, there is a worldwide shortage of semiconductor computer chips available. These chips are used in cars for various reasons including calibrating fuel injection and running onboard entertainment and information systems. Newer car models can have over 3,000 chips in them. Without the chips, the car cannot be manufactured or sold. According to the U.S. Bureau of Economic Analysis, the inventory of new vehicles assembled in North America at the beginning of 2021 totaled 396,00, and it now sits at 254,800. Similar to the used vehicle shortage, with fewer new cars, but higher demand, the value for them increases.
The beneficiaries in all this are those looking to sell their used cars or trade them in.
With all factors considered, now is one of the most profitable times to sell or trade in your used vehicle. The current market conditions have made used vehicles thousands of dollars worth more than normally. If you’re curious to know how much your used car is worth, please contact us and we’ll help you out.