Many families rely on purchasing preowned vehicles instead of spending tens of thousands on buying new ones. While this method was very feasible in the past, in recent years, the price of preowned vehicles has skyrocketed. This has made the market not only more competitive but has also kept many families from being able to afford a vehicle upgrade.
According to median used vehicle prices, the average cost of purchasing a used vehicle is about 65% of the cost of a new vehicle. Compare this to 49% in December of 2019, and it becomes overly clear that the used vehicle market isn’t what it used to be. Many experts blame a low inventory of used cars combined with supply-chain interruptions of new cars due to the COVID-19 pandemic for causing the price increase for used vehicles.
The Untimely Chip Shortage
During the COVID-19 pandemic, factory shutdowns put a halt to the production of semiconductors, also known as chips. All newer vehicles rely on these chips to run everything from power steering to vehicle entertainment systems. With the auto industry’s recent shift toward electric vehicles and more automation, new car designs require even more chips than ever before.
Due to the chip supply shortage, the auto industry has been forced to drastically reduce its new car production. While chip manufacturers are getting back to full power production, they have estimated it may take months or years to go in order to get anywhere close to meeting demand. Many chip manufacturers are even investing in upgrades to enhance output. But, these upgrades take time to come to fruition.
Fewer Preowned Vehicles From Leases
Leases have always been a staple in the preowned vehicle market. Dealers would rely on leasees to return their used vehicle and take out another lease on a newer model. Since the prices have increased dramatically on new cars and inventory has been at an all-time low, more leasees are taking advantage of buyout options.
For most dealer leases, a predetermined buyout price is set at the time the lease agreement is established. Those who took out a lease agreement prior to the pandemic are now able to purchase the vehicle for a much lower cost than the current market value. This has greatly contributed to a lack of preowned vehicle inventory over the recent year and is expected to continue to affect inventory going into the end of 2022.
Expect a Decreasing Price Trend in the Coming Years
Experts are suggesting that the price of used vehicles should start to dip slowly over the coming years. More and more vehicle manufacturers are stating that their inventory constraints should be remedied near the end of 2022. This is the main reason that used vehicle prices should be starting to decrease more and more as we approach the second half of 2022.
However, it’s vital to realize that this lower pricing trend is going to be slow coming. Apart from inventory shortages, some dealerships are transforming the way they do business. The low inventory caused by the pandemic allowed dealers to charge a premium for the lot vehicles that they did have. Many dealers realized that smaller inventories tend to be more profitable than large inventories.
While not all dealers will opt for the low inventory model, some will do so in the near future. This is going to require some extra time for dealers who go back to the large inventory sales model to overtake demand over the low inventory dealers. This will further add to the amount of time it takes for preowned vehicle prices to drop going into the end of 2022 and the beginning of 2023.
Anticipate Lower Prices for SUVs and Pickup Trucks
As gas prices continue to soar at record high levels, more and more consumers are getting rid of their gas-guzzling pickup trucks and SUVs. The demand for sedans has increased in recent months and is expected to remain that way for the foreseeable future.
When taking a look at the increase in vehicle price from December 2019 to December 2021, there’s clearly a big difference depending on the style of vehicle. SUVs saw price jumps between 32 and 41%. Pickup trucks saw increases between 23 to 48%, depending on the specific model. Sedans, on the other hand, saw price increases of 40 to 52%. Based on these numbers, it’s become clear that it’s going to take longer for sedan prices to decrease over the coming years as compared to SUVs and pickup trucks.
Prepare Yourself to Strike When the Time Arises
As the used vehicle market starts to plateau and eventually decrease, you need to be ready to buy at a moment’s notice. Typically, the faster you can respond to a car listing, the more likely you are to purchase it before another buyer comes along. The best first step you can take is to understand your budget and get an auto loan pre-approval.
When you research your budget and loan interest rates, you can determine the price range that you can comfortably afford. You’ll want to take some time and look at the various vehicles that fit within your price range. While it’s easy to get stuck on the look of one vehicle, it can be greatly beneficial to look for other brands of vehicles that offer similar amenities. The larger your list of potential makes and models that you will be happy with buying, the more likely you’re going to find an affordable preowned vehicle.
Next, you can utilize various online car selling platforms to consistently search for new preowned car listings. Many of these sites will even allow you to specify your search and provide you with notifications as soon as a vehicle matching your search criteria is listed for sale.
As soon as you get a notification about a used vehicle that matches your necessary criteria, it’s important to strike while the iron is hot. Taking a few days to think it over will likely result in another buyer getting it before you. Setting price alerts on your favorite Carvana vehicles can help notify you when the price drops to a range that’s within your personal budget.
While prices for used cars are much more expensive than they used to be, it’s expected that prices will drop by the end of 2022 into the start of 2023. Still, Carvana has the widest selection of cars under $20,000 of any online retailer and you can always check out vehicles marked as “Great Deal” when browsing our inventory. This means the vehicle is priced $1,500 or more under the Kelley Blue Book Suggested Retail Value.
