It seems like the pandemic has messed up everything from the time continuum to used car prices. Is there nothing it hasn’t turned upside down? Production shortages, microchip scarcity, and buyer frenzy have flipped the price of used versus new cars. A used car in 2021 may be selling for more than a new one. What’s up with that?
Used cars prices are 30% more now than in 2020
Used cars are almost 30% more expensive than last year at this time according to Cox Automotive. Cox tracks over six million vehicles each year, so they’ve charted the prices to come up with this head-scratcher. In fact, used car prices have gone up 1.7% each week for the past three weeks.
Cox uses the example of the Kia Soul. A brand new 2021 Soul LX sells for around $17,724. But a 2020 Soul LX with identical colors and options just sold through Manheim Auctions for $18,500. Manheim is the largest auction house in the world. It listed the 2020 Kia with 5,000 miles on the ticker and “contaminated oil.” That doesn’t sound good.
On top of the higher used car prices buys pay a “buy fee”
Besides the auction sale price, the buyer had to pay a “buy fee” of $500. Then there is the $200 post-sale inspection, transportation costs, and changing out the oil. So you can add a few hundred dollars more to the bottom line.
Then there is the 2016 Kia Rio LX example. The forecasted wholesale price was set at $8,275. Today is sold for $12,400 at auction. Now add the $500 buy fee and other assorted costs and the actual cost is probably a thousand dollars north of that.
Yet another example is a damaged 2017 Hyundai Accent. With 75,000 miles and a bad transmission, it should have auctioned for around $5,700. It sold for $8,000.
One thing this indicates is that some dealers don’t expect potential buyers will do their homework on prices. That or these overpriced used cars will be targeted at subprime borrowers. They usually can’t qualify for a new car and so a used car is their only option. But whatever is the explanation it is the basic tenet of supply and demand.
Stimulus money and tax refunds just now are getting into American’s pockets
And don’t forget the stimulus money and tax refunds just now getting into American’s pockets. And the American Jobs Plan will stab another $2 trillion into the bursting economy. Then there are forecasts from different banks and credit companies indicating prosperity ramping up. It all collides into a steaming stew of demand for products; especially vehicles.
Now some are suggesting that if your current car is coming off lease that you should buy it. Then sell it. The residual was calculated two or three years ago when things were normal, or typical. Contractually, the lessor has to give you first dibs at the price determined when the lease was written up. You might be able to make a quick $2,000-4,000.