Why Are Used Car Prices Skyrocketing Right Now?
Many people grew up living and dying by the financial advice of passing on new cars and finding a better deal on a used car. However, after 2020 and the myriad of production issues, the new car logjam has sent used car prices skyrocketing, making our parents’ advice on used cars less pertinent.
What is going on with used car prices?
As the economy attempts to recover and unemployment begins to shrink, the new car market has come to a screeching halt. The new car shortage has come as a year-long result of production plants shutting down for COVID-19 safety reasons causing production delays.
Not only were the car factories shut down and behind, the factories that make the parts for these car factories were also shut down. This has led to multiple kinks in the supply chain. Chief among these supply issues is the semiconductor chip shortage. This has affected everyone from Toyota to Playstation.
According to Consumer Reports, these production delays have resulted in a serious seller’s market for used cars. What we see now is a 12.5 percent increase in average used car prices. CR says that the average used car price went from $21,020 to $23,643 in the past year.
Should you buy a new or used car?
In a rare occurrence, this is one of the few times in history where the value of used cars across the board is going up. This is turning many customers toward new cars who might otherwise buy something a few years old.
Nick Woolard, an analyst at TrueCar, said, “It’s a great time to trade or sell a used vehicle…Used vehicles are going up in value, and that doesn’t happen that often.”
While this is exciting for some customers, it comes with a catch. Say you have a used car and you wanted to swap for something else but couldn’t afford a new car; this situation might change that. However, your used car is going up in value because the supply of new cars is limited right now. This means the chances of getting your hands on the new car you actually want are fairly slim.
When will the semiconductor chip shortage end?
Consumer Reports mentions that this semiconductor chip shortage seems to have no end in sight. The confluence of things that led to this shortage is what is making it so problematic. Obviously, it’s not just new vehicles that use these chips; it’s almost every product within the electronics segment.
What makes matters even more extreme for the used car market is that people are starting to go to work, stimulus checks are here, and many people are ready to buy. The shortage of new cars will only increase as people start buying them, driving the cost of used cars even higher.
Now is the time to sell your used car
The upside to this whole thing is that if you have a used car, it is getting more valuable by the day. Consumer Reports says that used car prices are rising at a higher rate than new cars.
If you can manage to find a new model that you want, dealers are offering more for your trade-in than ever before. If you play your cards right, you might find a good excuse to treat yourself and turn your used car into a new car.