Used Car Prices are at an All-Time High
- Over the past year, a shortage in semiconductor chips has led to the prices of used cars increasing versus decreasing in value.
- The shortage of these chips has led to rental car companies and used car dealerships taking part in car buying to keep up with demand.
- With the rise in prices, use transport alternatives until the market cools down, such as carpooling, public transport, and walking.
Typically, new and used vehicles decrease in value each year. However, the average price of used cars has increased by 4.9% over the past year. As a result, many used car owners have become intrigued to sell their used cars for profit. The current market price for used vehicles includes leased vehicles. With current rates being higher than the buyout value of the lease agreements, many are selling their cars, paying the buyout value of their leases, and walking away with some extra money.
Why are the prices in the car market rising?
The price of used cars has increased since the beginning of the pandemic due to a shortage of new vehicles.
The pandemic brought global and domestic operations to a halt causing many companies, including rental car companies, to take drastic measures to survive and not declare bankruptcy. Rental car companies rely on travelers coming and renting their cars to earn company revenue. However, the lowered demand for traveling during the earlier periods of the pandemic caused many rental car companies not to have sufficient customers to make a profit. As a result, the lower demand levels led them to sell a large fleet of cars to ensure they had enough money to pay their monthly payments.
Fast forward a year, with travel restrictions being loosened and more people visiting other places; most rental car companies do not have enough cars to match their demand. Therefore, they are buying used cars at a premium to have enough vehicles to fit their needs.
The second reason used cars have increased in price over the last year is that the pandemic has made it increasingly difficult for car manufacturers to obtain semiconductor chips. Semiconductor chips are essential parts used by manufacturers to produce cars.
The pandemic caused a lockdown and suspension of what was considered non-essential operations. Due to worldwide lockdowns, one of those business operations was car part manufacturers, which has now resulted in a chip shortage. Thus, with the lack of new cars being released and sold to the general public, the demand for pre-owned vehicles has increased. The increased demand has opened the opportunity for car owners to sell their used cars to car dealerships or rental car companies for a higher price than when they purchased the vehicle.
Alternatives to buying a used car.
As a result of the recent price surge, finding a suitable car within your price range may prove to be a difficult task. Therefore, if you are in the market for a car but feel that the current price of vehicles is not ideal, there are transportation alternatives until the prices and market demand of used vehicles decrease.
The most suitable alternative is to use public transport to complete your daily activities or tasks. Although public transportation may not be available in small cities and rural areas, trains and buses are a relatively standard and inexpensive offering of public transportation in many locations.
If you wish to save money and wait until the used car market returns to its former state, public transport is ideal.
A second alternative is to carpool. For example, if you have friends who live nearby, you can ride with them to nearby locations in a direction they were already traveling. Alternatively, you can also offer financial compensation, such as gas money, for them to take you to a desired location.
Walk / Bike
A healthier alternative to purchasing a car is to walk or bike to the places you need to go. By doing so, you are saving money to hopefully buy your desired vehicle when the market returns to its normal state. At the same time, you are also getting exercise, which is key to having a healthy financial mindset.
CapWay Tip: Money made from selling your used vehicle or money saved by using transportation alternatives could be used to invest in stocks. By investing in stocks, you are investing in your future by creating passive income and generational wealth.
With the economy reopening in many aspects, semiconductor companies are working overtime to produce large volumes of chips to catch up to demand. Once chips are being distributed to companies at the demand rate, it will lower the price of buying and selling used cars.
What do you think will happen to the price of used cars? Let us know in the comments below.