The pandemic completely altered many industries, and the used car market was no exception. Over the past year, the trade-in value and selling price for used vehicles have hit an all-time high. And while changes in sales year-to-year are common, the price surge over the last year is unprecedented. Between May 2020 and May 2021, the selling price for used cars jumped nearly 30 percent, according to the U.S. Bureau of Labor Statistics. Currently, the average price for a pre-owned vehicle sits around a record-hitting $25,463.
So, what happened?
To put it simply, the increased value can be attributed to the shortage of cars as a result of the pandemic. Now as the economy slowly starts to recover, the demand continues to grow each day. Consequently, used cars have never been worth more than now. The silver lining in this is for those looking to sell or trade-in their car, this is an incredibly profitable time.
Altogether, the shortage can be explained by the pandemic. To start, the pandemic temporarily shut down many industries – including the automotive industry. Global travel bans directly impacted the rental car business, as well as new car manufacturing, which had a domino effect on anything vehicle-related.
The used car market relies heavily on new vehicle manufacturing and the rental car industry.
Manufacturers cannot create pre-owned vehicles. This means the used car market relies on other avenues to generate its supply. One major contributor to this is the rental car industry. Every 12 to 18 months, rental car agencies sell their cars and replace them with newer vehicles. But when travel bans hit the nation early last year, this caused many operators to rapidly unload their existing vehicles without purchasing replacements. This disrupted the consistent cycle of gradual selling and replacing, meaning fewer used cars have been entering the market.
Another way the used car market is replenished is through consumers turning over leased vehicles or trading in their old vehicles for newer ones. However, with record levels of unemployment, financial insecurity, and stay-at-home orders, most people chose to stay with their current vehicle last year. Used cars can also enter the market via repossession, but with banks being more lenient on delayed car payments, this also halted that process.
All factors considered equal a significant amount fewer used cars ready to be resold. And while consumers were slower to buy cars in 2020, most of those who did chose to go the pre-owned route. According to data from Statista, there were nearly 3x as many used cars sold in 2020 as there were new cars sold.
The demand is more than the automotive industry can handle right now.
As life slowly goes back to normal, many drivers are eager to get back on the road. Restricted flight travel increased the popularity of road trips in 2020, and it seems the trend will continue throughout 2021. Additionally, the historically low-interest rates have incentivized consumers to make bigger purchases. This coupled with people receiving stimulus checks, annual tax refunds, and some the need for retail therapy mean many people are in the market to upgrade their vehicle.
All this seems like the perfect recipe for automotive purchasing, but the current situation is that there are 25% fewer used cars for sale now than there were last year, according to data from Cox Automotive. There’s also a significant amount more buyers compared to last year. According to Cox data, there was a 52% increase in used cars sold from a 30-day period in early 2020 compared to that same period in 2021. With fewer cars to sell, but growing demand, the value of them increases.
So, why don’t consumers just buy new vehicles?
There’s also a shortage of new vehicles being manufactured.
The coronavirus pandemic also created a worldwide shortage of semiconductor computer chips. These chips are essential in vehicle manufacturing because they control the information and entertainment systems. A new vehicle can have over 3,000 chips in it. Without them, the car cannot be manufactured or sold. According to the U.S. Bureau of Economic Analysis, the inventory of new cars assembled at the beginning of 2021 totaled around 400,000, and it now sits slightly above 250,000. This shortage has also caused the value of new cars to rise, steering many consumers to purchase pre-owned.
The winners in this are those looking to sell or trade-in their used cars.
With all factors considered, now is one of the most profitable times to sell or trade-in your used car. The current market conditions have made pre-owned vehicles thousands of dollars worth more than typical. If you’re curious to know how much your used vehicle is worth, please contact us and we’ll help you out.
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