The Current State of Used Cars
After a stormy couple years, buyers are beginning to wonder if it might finally be safe to return to the used car market.
To say that the last couple of years have been rough for potential buyers in the automotive market would be a monumental understatement. The automotive sector was one of the first and the hardest industries hit when the Covid-19 pandemic first began in late 2019 and early 2020. The pandemic and the events that it set in motion quickly began to wreak havoc on supply chains throughout the world’s economies, and potential car buyers have been suffering under inventory shortages and massive price hikes ever since. After two years of hunkering down and waiting for better economic conditions, many potential buyers and a few economic forecasters are wondering if the time might soon be right to re-enter the used car market.
The Long Road Here
The last two years have been some of the roughest modern buyers have ever endured.
Shortages first struck the big manufacturers in the automotive industry. Delayed shipments of necessary parts (including particularly critical computer chips mainly imported from Taiwan), sudden worker shortages, and an increasingly skittish consumer base forced the major manufacturers into making major cut-backs. This downturn in inventory quickly led to a huge shortage of new cars on the market, and as the number of new cars on the market began to plummet, age-old laws of supply and demand came into play, naturally driving prices to skyrocket as inventory numbers continued to crash. Prices of new cars on the market surged further and further each year of the pandemic, increasing by an average of $1800 per vehicle in 2019, over $3000 in 2020, and a whopping extra $6000 on top of that by 2021. This trend has continued into 2022, with the average sticker price of a new car rising to over $47,000 by January of this year.
These massive price hikes in the new car market naturally forced consumers to seek more affordable options in the used car market. Of course, this began to drive demand for used cars up as well, and predictably caused similar price spikes to take hold in that market, too. In the first year of the pandemic, the average price of a used car jumped 44% from about $17,500 to over $25,000. Worse still, the average amount of savings consumers could expect by buying used instead of new has also shrunk rapidly as the value of older cars began to increase.
By January of this year, the average price of a used vehicle had jumped up to 65% of the price of a brand new counterpart. While there are certainly still many used vehicles on the market being offered for far less than those median numbers, consumers still must remain wary of options that seem good up front but leave them on the hook for costly repairs to an aging vehicle later. Facing such devastating price hikes in the markets for both new and used vehicles, it’s no surprise that many potential buyers have opted to wait the market out as long as possible. That plan is a solid one, as long as potential buyers can continue to afford not to buy their next vehicle. But the night has been long, and the wait has been difficult for many. As the world continues to recover from the Covid-19 pandemic, and supply chains and inventory shortages are slowly but surely being mended, many wonder if it’s finally time for buyers to come up for air.
Are The Waters Finally Safe For Buyers?
There are promising economic signs on the horizon, but the automotive market is still feeling a hangover from 2020.
Fascinating though our recounting of recent economic history surely has been, the time has finally come to begin our analysis of today’s used car market. In short, though the market has been slowly improving for buyers after prices reached their peak last February, it’s still pretty rough out there. Lingering supply chain issues mean that many dealerships will still be struggling to fill their inventories throughout the rest of the year. But economic forecasters are starting to see many of the same trends that have recently relieved other industries from their supply chain woes, and predict a general stabilization of inventories and prices by early next year.
Just as was the case in 2019 and 2020, the fate of the used car industry depends upon the fate of their new car counterparts. It was the collapse of the new car industry’s ability to maintain supply in 2019 that drove the used car industry to its current state, and experts predict that as the first industry slowly continues to recover, so will the second. Many are predicting an average price drop of 20 to 30 percent by spring of 2023. These promises of industry recovery and the corresponding expectations of normalizing inventory and pricing figures will all be a welcome relief to the buyers of 2023 and beyond. If it is possible for you to hold out a little longer for those improved buying conditions, then you should probably hunker down for, hopefully, just a little longer.
Advice Before Diving In
If you can’t afford to postpone buying your next car any longer, there are still a few things you can do to try to improve your hand before venturing forth.
Of course, there are a million and one reasons why it might just not be practical or feasible for you to continue trying to wait out the current economic storm before making your next vehicular purchase. If you find yourself in such a boat, there are a few things you can still do to try to improve your hand before venturing forth to strike a deal.
One of the most important factors for current buyers to consider is their loans and interest rates. With prices (hopefully) set to inevitably drop in the near future, a badly financed loan now could end up costing buyers greatly in the long run. This is a time when companies like Car Credit could end up being the saving grace for potential buyers with low or no credit. Normally, potential buyers with little or no credit can expect loans with extremely high interest rates or to be turned away outright from potential lenders, but Car Credit gets around this by cutting the bankers right out of the equation and offering these low or no credit customers fair offers and loans right off the lot, no credit score needed.
Another way that buyers in the current market can turn the odds back in their favor is by considering a trade-in. As the overall prices of used cars have increased over the last few years, so have the values of used car trade-ins. Savvy buyers can use this fact, and a well played aging vehicle, to their advantage at the negotiating table and possibly knock a hefty amount of their new loan down right away.
It is also more important than ever for potential used car buyers to carefully consider the value of all of the offers and opportunities dealerships offer. Here again, Car Credit goes above and beyond the competition, boasting valuable benefits such as their supreme commitment to providing customers with the highest quality pre-owned vehicles posible. This commitment begins with a twelve bay vehicle inspection center, where every one of their vehicles must pass a full 21 point inspection before hitting the sales lot.
In addition to this bumper to bumper inspection, Car Credit guarantees the best quality product possible by adding a free two year service agreement to most of their sales. This agreement covers all of the maintenance bases for the first two years you own your new vehicle, including everything from regular inspections and oil changes, to brake pad and spark plug replacements, and even expensive engine tune ups. As the current era of supply chain issues, worker shortages, and soaring costs due to inflation stretches on, programs like this two year maintenance agreement are only going to become more valuable to potential buyers as time goes on.
This is especially true right now because the same supply and worker shortages that wrecked the new car market back in 2020 have been hitting the automotive repair industry as well. And worse, those effects have combined with a surge in demand from people deciding to hang on to aging vehicles as long as possible to effectively bring the automotive repair industry to its knees. Surveys of the automotive repair industry show that due to these shortages, consumers have nearly universally been forced to wait longer and pay more for the same routine services they had before Covid. Even more frighteningly, some more specialized services have become nearly impossible to complete at all as repair shops remain caught in limbo, forever waiting for niche parts to be delivered. All of these factors combined make the goal of keeping your vehicle running an increasingly impossible challenge to accomplish without help. Fortunately, taking advantage of options like Car Credit’s extended warranty agreement can help you flip that script with a solid defense of quality maintenance.
A final thought that today’s potential buyers might find worthwhile to consider is the possibility of the revival of the new car industry creating a brief inventory surplus at many used car dealerships. As we’ve said, most dealerships are currently struggling to find vehicles to fill their inventories, but that status may be reversed once the new car industry manages to get back on its feet and used car dealers start looking to make room on their lots for newer vehicles. Particularly savvy or lucky buyers may be able to turn the negotiating tables by hunting for deals during that brief period of overstocking, though predicting exactly when that window will open and for how long is still firmly the business of clairvoyants.
The storm is passing, but the waters will remain choppy for a little longer yet.
The Covid-19 pandemic, still not completely left in the rearview mirror today, has left its scars on all aspects of our modern lives. The economic wounds it left us were some of the deepest of all, and we will still be feeling the pain from them for some time to come. The last two years have seen some of the worst markets for buyers in recent history, and the vehicle marketplace is certainly no exception. Time heals all wounds, however, even economic ones, and the signs of rebirth and reconstruction are all around us. For those who can, hold out just a little longer and we may finally see the market shift back to a more buyer friendly state. For those who can’t afford to wait out the market any longer, be cautious and methodical in your decision making. It is undoubtedly still rough for you out there, but there are ways of turning the tides in your favor, even now.
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