We’ve all heard that new cars lose a quarter of their value as soon as you drive them off the lot, and we here at Ideal think that’s 100% true! So, why would you go out and buy a new car when you could get one that’s half the price on the used market?
Buying used is definitely the best way to get a sweet ride at an awesome price. But hold on! If you’re thinking about getting into a used car, now is definitely not the best time. That’s right, used car prices have absolutely skyrocketed in 2020, and they seem to just keep going up and up in 2021. So, for now, I’d suggest you just keep pushing that old rustbucket instead of trading it in for a used car.
So… what the hell is going on? What’s driving these used car prices up to the moon? And when are we going to be able to buy used cars for good prices again? Well, in this article, I’m going to tell you all that and more! This is why you should definitely not buy a used car right now!
The Used Car Price Boom
In case any of you thought I was exaggerating, let’s start off this article by looking at just how much used car prices have increased over the past year. Get ready, these numbers are pretty staggering…
It’s pretty common to see fluctuations in used car sales and used car prices from year to year, but 2020 was an entirely different animal. According to Cox Automotive, who owns Kelley Blue Book, AutoTrader, and Xtime, the average value of a used car went up 15% in 2020. And with inflation in the US at under 1% last year, it’s safe to assume that the price spike was not the result of natural market fluctuation.
Listings on CarGurus at the end of 2020 were averaging $22,470, which was an increase of over $1,800 from the beginning of the year. That’s not just a big increase, that’s a freakin’ record high, and those prices have continued to climb about another $500 in 2021 so far.
Som if you were thinking about trading in your old minivan and getting a cool new used car, you’re definitely going to end up paying more now than you would in any other year. With that being said, there are still some cars out there on the used market that you can get for a good deal. But, if you’re feeling pretty particular about a specific make, model, or color, you’re almost certainly going to end up paying a big premium in 2021.
So, what gives? What’s going on in today’s market? Why are used car prices going to the moon all of a sudden? Well, in case you didn’t already have enough, I’m going to give you one more reason to hate the pandemic.
Used Cars and Coronavirus
Yeah, that’s right, just like most of the bad things that happened in 2020, the coronavirus is somewhat to blame for the spike in used car prices. For all my budding economists out there, COVID-19 has essentially created a situation in the used car market where there’s extremely high demand and extremely low supply.
This is what’s really going on: you see, the used car market relies on a supply of cars coming in every day. A lot of these come from people selling their cars to used car dealers when they go to get a new car, or they bring their car in after their lease has expired. A lot of these cars were also used as rental cars because rental companies need to occasionally replace vehicles in their fleets.
But, with COVID-19 safety restrictions, a lot of car production facilities had to shut down for a while. Ford had to shut down two factories back in May, one in Michigan and one in Chicago. The one in Michigan shut down because an employee tested positive for COVID, while the one in Chicago shut down because of a parts shortage. Why did they have a parts shortage? Well, because their supplier had to shut down because of COVID!
So, you see, it’s like a double whammy of effects hurting car companies’ production numbers. And since fewer cars were produced across the market overall, the prices of new cars went up as well. And what happens when new car prices go up? Fewer people buy new cars, especially since the pandemic has caused a lot of financial hardship for a lot of people, and so fewer people are trading in their old cars for new ones, and there are fewer used cars available in the market.
On top of that, rental companies are also bleeding financially, as is the travel industry as a whole, and so they don’t want to start buying new cars and trading in their old fleet during a pandemic. Boom. Even fewer used cars on the market.
So, that’s the first thing going on. Super low supply of used cars. New cars are more expensive, fewer people are trading in their cars, and so there are fewer used cars, and the price goes up. Yeah, it sucks, but there’s actually another factor driving up used car prices that we don’t really have to frown about.
If everything else in 2020 sucked, at least we can smile about the fact that we got free money from the government. And with everyone in the USA running around with an extra $4,000 in their pocket, it’s no surprise that some people want to use that money for a car.
However, with new car prices way up because of the reasons I mentioned before, and the overall climate of financial anxiety right now, people are choosing to look to the used market instead. So, the demand for used cars is also going through the roof, which allows used car dealers to boost those prices up even more.
Hey, I don’t blame anyone for wanting to spend their stimulus money on a used car. The second I got my stimulus check in the mail, you’d better believe I was surfing AutoTempest until my eyes got tired. But it’s that kind of excitement about having extra money to throw on a used car that’s driving prices way up.
So, when can we expect prices to return to normal? Or are these high prices… dare I say it… the new normal?
We Want Cheap Cars Again!
If you’ve been saving up to buy that secondhand Miata so you can cruise down the coast with your top down, you’re better off waiting out this pandemic. I’m sorry, I know that hurts. But it seems like prices aren’t going to go back to normal until, well, everything goes back to normal.
As long as this pandemic is still going on, factories are going to continue to have to shut their doors because of outbreaks, rental companies will continue to cut costs by holding on to their old fleets, regular people will continue to hold on to their old jalopies instead of buying new cars, and the used car market will just keep on drying up while the prices rise.
I know, I know, it’s crappy news, but don’t blame me, blame the damn coronavirus. It’s going to take a while for the market to recover even after things go back to normal, so 2021 could be another year of absurdly high used car prices.
But hey, the CDC says we’ll have 500 million Americans vaccinated by August 19th, so maybe normal life isn’t all that far away after all. Whatever happens, I would recommend taking a look at the used car price index on CarGurus before you go out and buy a used car.
I know you’re probably anxious to get behind the wheel of that used WRX and start rallying like a madman, but right now, you’re probably going to way overpay for it. So, drive that old Civic into the ground. Yeah, the one with the front bumper falling off. Put on a happy face, and wait for better days. There will come a time when buying a used car is a smart decision again, but it’s just not right now.