Why Are Used Cars Getting More Expensive
- According to the Bureau of Labor Statistics, certified pre-owned cars have raised in price by 41.2%.
- The main reasons behind used car prices rising are inflation, the microchip shortage, and the Russia-Ukraine war.
- Although rising prices are unfortunate, it is essential to identify how to use this situation to your advantage and profit off of it.
Due to COVID-19, everyday items have begun rising in price. For example, according to a report released by the Bureau of Labor Statistics, certified pre-owned cars have raised in price by 41.2%. As the costs of used cars are rising, possibly to an all-time high, it is vital to understand the factors which played a role in this outcome.
What Has Caused Higher Prices
Since the beginning of the pandemic, the production of semiconductor chips has slowed down due to the factories being shut down. Therefore, fewer cars have been produced over the past couple of years due to the manufacturing facilities shutting down. Consequently, per the law of supply and demand, lower vehicle production has led to higher car prices.
The second event which has cost used cars to a price increase is the ongoing Russian invasion into Ukraine. This ongoing war has contributed to rising costs in two ways, sanctions, and disruptions within the supply chain.
Supply Chain Disruptions
The second way the Russia-Ukraine war has negatively impacted used car prices is by disrupting car manufacturers’ supply chains. For example, Ukraine produces one key component of cars, which European carmakers such as Audi and Mercedes use, wire harnesses.
These carmakers have disclosed that this specific piece is a bottleneck, meaning that lack of access to this can significantly hinder production. Furthermore, as millions of Ukrainians are either fleeing the country or staying back to defend their land, production for these car parts has dropped, resulting in fewer being built altogether.
As a result, due to the fewer number of newer cars being produced, via the law of supply and demand, this has led to higher prices for relatively new used models.
Sanctions are a form of severe penalties that are put on countries, companies, and individuals if specific laws are violated. As for Russia, many countries sanction them since they are conducting war crimes. The war crimes include bombings that are being targeted towards civilians.
Thus, countries such as Canada, the U.K., the U.S., Taiwan, New Zealand, Japan, and the E.U have all sanctioned Russia’s economy. These sanctions have led to gasoline prices rising, and it will have an indirect impact on the whole economy, as when gas prices increase, it will lead to other companies raising prices as well.
When the federal government or one of its establishments wishes to measure inflation over the past year, they use the Consumer Price Index (CPI). CPI is calculated by determining the total price for a basket of goods in a base year, usually between 1982 to 1984.
Once they determine the basket price of the same goods in the current year, they then divide the two basket prices, and the outcome is the inflation rate for the current year. The Bureau of Labor Statistics determined that the year-over-year CPI had risen an additional 0.9%, nearing a 40 year high. The increase in inflation indicates increasing prices and a higher cost of living.
Consequently, high inflation also led to an increase in used car prices.
Impacts of the Higher Prices
These factors have caused increased food prices, living expenses, and other necessities. As a result, many people will have lower disposable incomes because they will spend more of their income to pay for living expenses. If you look at every situation from a pessimistic perspective, it will never benefit them. Therefore, it is essential to use this situation to determine how to profit from it.
Image Credit: Dreamer Company / Shutterstock.com
How to Profit From Increased Prices
Due to the increased prices, one primary way you can profit from the current used car market is to sell your car if your lease is almost up. If the market value of your vehicle exceeds what it costs to purchase it from the dealership, then, financially speaking, it makes sense to buy the car and sell it on sites such as AutoTrader.
You can now use the profit to purchase a reliable, older model while having some money left in your pocket. In addition, after buying an older model, you can now use the profit for other purposes, such as investing in the stock market to combat inflation.
Inflation alongside other world events will cause various shifts in price. Although these occasions will negatively impact, it is important to look at these situations from an opportunistic perspective and determine how to capitalize on them.
Main Image Credit: Pincasso / Shutterstock.com