If you are in the market for a used vehicle, you have probably experienced a bit of sticker shock. That’s because used car prices have skyrocketed in recent months, in some cases even surpassing the vehicle’s original MSRP. This has undoubtedly turned vehicles into an appreciating asset, something that has previously been unheard of. These record high prices have left consumers feeling annoyed, frustrated, and curious about what is going on. The answer is pretty simple- supply and demand. This basic economic principle, combined with the coronavirus pandemic, has led to record high used car prices. Let’s take a closer look at how we ended up here and what factors have contributed to this rise in price.
There is no doubt that the COVID-19 pandemic has adversely affected a number of industries, and the automotive industry is no exception. In early 2020, millions of workers were forced to work from home, which translated to a delay in new car purchases. Fewer new car purchases means consumers are holding on to their old cars and this leads to fewer used cars available for sale. In short, without a healthy market for new car sales, the used car supply dries up and the cost increases due to lack of inventory. Simultaneously, record levels of unemployment and financial anxiety have encouraged more people to buy used cars instead of new ones, which has led to an even greater demand. Simply put, more and more people are lining up to buy used cars but the supply is low and this drives the prices up.
Another reason used car prices have been hit so hard is directly related to rental car companies. Rental car companies were at a near halt last year as a result of the pandemic so many of them sold off most of their cars in order to stay afloat. Now, with the rebound in travel, rental car companies are facing a shortage of cars to rent as demand has soared. They are scrambling to purchase used cars, and are even willing to pay a premium price, to restock their inventory.,
Another factor that is playing into the recent surge in demand for used cars is the fact that many buyers are now starting to make purchases that they put off last year as a result of financial uncertainty during the crisis. Since there are fewer new cars on the market, these buyers are now forced to look into purchasing a used car. These same consumers had planned to spend more to buy a new car, so their budget is now higher for a used car.
Finally, we are facing an unprecedented shipping crisis, with barges unable to unload at their ports. This has led to a devastating shortage of microchips, which are necessary for the electrical components in new cars. As a result, new car manufacturers are forced to slow production, which has left consumers with no choice but to purchase used cars. Again, there is a high demand for used cars and a shortage of supply, which has driven used cars prices to an all-time high.