Why are used car prices still so high?
One driver of inflation in Tuesday’s consumer price index report has proved to be durable — namely, the price of used cars. It’s up 9% over the past two months.
While they’re down from their peak during the pandemic, used car prices are still about 40% higher than before COVID, according to the Bureau of Labor Statistics. Plus, pretty much everything about owning a used car is a lot more expensive than it used to be.
The used car market has a crucial component: new cars. “It’s all a giant, like, a Slinky. It all starts with that new vehicle getting sold,” said David Whiston, who follows the automotive industry for Morningstar. “And then years later, that new vehicle will get sold as a used vehicle perhaps two or three times before it’s scrapped.”
Right now, that Slinky has some kinks in it. Way fewer new cars have been produced in recent years because of the shortage of microchips that started at the beginning of the pandemic.
So, there are not as many used cars for sale now, “and ‘There’s no used car factory,’ is the way I like to explain it to people,” Whiston said.
The low supply of used cars means higher prices. At Stivers Ford Lincoln in Waukee, Iowa, president Scott Politte said that used car prices can vary by $1,000 week to week. His dealership has sold 15% to 20% fewer in the past year.
“Just because of the lack of inventory or lack of inventory that’s priced right that will sell,” Politte said.
All of this is a particular challenge for the lowest earners, who are more likely to purchase used cars than new ones.
It’s not just the cars that are getting more expensive, said Robert Frick, a corporate economist with the Navy Federal Credit Union.
“If it were just used car prices, OK, that’s bad. But if it were used car prices and higher insurance, that’s worse,” he said. “Now, you add in much higher repair costs. Now, it’s become a real problem.”
People should take a close look at the auto loans they’re getting, Frick said, because the interest rates can really vary.
This is also not the moment to buy your dream truck or SUV, he said. “Buy less car. Buy a car that might not be the car you want but is cheap and has as low mileage as you can afford.”
Because as a classmate wrote in my high school yearbook, a dream car is really any car that runs.
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