Because of the shortages brought by the pandemic-related supply chain problems, fewer cars were introduced to the market in 2021. This resulted in a sudden increase in price across the world. However, the used car market experienced greater disruption following the increased demand from consumers. According to the U.S. Bureau of Labour Statistics, the prices of used cars rose by 39.8%.
The prices were still on the rise even towards the end of 2020. The average purchase price of vehicles increased by $100 to $200 every week. It was a record year for used vehicles in the country and around the world.
Are Used Cars Mores Expensive?
One question a lot of people might have is “are used cars more expensive right now?” At the beginning of the pandemic, automotive production decreased significantly. According to the U.S. Bureau of Economic Analysis, production reduced by 99% in April 2020 compared to February of the same year. As the industry seemed to get back on its feet during the 2020 summer, delays and shortages due to global supply chain issues lead to another drop[ in production by 23%.
Additionally, increased demand from consumers has also fueled the rise in the prices of used vehicles. The high demand has partly been a result of record low car loan interest rates compounded by increased sales of vehicles by private people relocating from urban areas.
What to Expect in 2022
1. Inventory Shortages Will Persist
The low inventory and chip shortage won’t go away any time soon. But car manufacturers are optimistic that things will start improving as from next year. This means that the used car industry is at its highest level. According to a market report released last year, used vehicle inventory increased by more than six percent between December 2021 and January 2022. This is after declining for four consecutive months.
Although the new vehicle inventory is still sluggish one year later, inventory levels have generally been on the rise since December 2022. This might take off some of the pressure on the current prices of new and used vehicles.
2. Used Car Inventory will push Customers to Dealerships
Most buyers are still paying a premium for their used cars. According to statistics from the Market First Report, the average price of a used car increased to $33,464 in February. This is an increase of about one percent compared to the same price last year in February.
While prices are expected to reduce, chances are high that the used car industry will continue to experience high demand. Buyers are likely going to pivot towards new cars if there is no huge difference with new cars in the market. This is because the gap between different models is constantly reducing.
3. Used EVs will Become More Expensive than New Ones
Considering the unusual pressure of gas prices faced in the country, electric and hybrid vehicles are becoming more attractive to buyers. The U.S. Commerce Department in March announced that the price of gasoline increased by 18%. Nothing has changed since then.
According to a survey conducted in April, 40% of consumers intend to buy an EV in the next five years while 60% intend to own one in the next 10 years. This data points to a rise in demand for electric vehicles. This also means that the price of new and used electric vehicles will rise.
4. Extended Buying Cycle and Increased Price Competition
As the prices continue to surge, it is evident that most buyers are starting to reach a breaking point. Consumers are not quick to buy cars as they did before. They are not willing to pay the prices being quoted by most car dealers and manufacturers. Market statistics show that buyers are currently taking an average of 170 days to purchase a used car. This is a drop from the 89 days in March last year.
Besides, sales of used cars that are 10 years and below decreased by approximately 27% from last year. This indicates that shoppers are taking more time to explore better options terms due to high prices.
There’s a lot to expect in the 2020 used car market. The increased demand for used cars is going to keep the prices up for some time. But this trend will slow down as car manufacturers continue to increase their production.