Prices of new vehicles far outpaced overall consumer inflation over the past year. In response, many buyers who were priced out of that market turned to used vehicles. Yet their demand proved so potent that used-vehicle prices soared even more than new ones did.
The price of an average new vehicle jumped 6% between January of last year, before the coronavirus erupted in the United States, and December to a record $40,578.
Yet that increase was nothing next to what happened in the used market. The average price of a used vehicle surged nearly 14% — roughly 10 times the rate of inflation — to over $23,000. It was among the fastest such increases in decades, said Ivan Drury, a senior manager.
The main reason for the exploding prices is a simple one of economics: Too few vehicles available for sale during the pandemic and too many buyers. The price hikes come at a terrible time for buyers, many of whom are struggling financially or looking for vehicles to avoid public transit or ride-hailing because the virus. And dealers and analysts say the elevated prices could endure or rise even further for months or years, with new vehicle inventories tight and fewer trade-ins coming onto dealers’ lots.
The supply shortage arose last spring after the coronavirus hit hard. Automakers had to shut down North American factories to try to stop the virus’ spread. The factory shutdowns reduced the industry’s sales of new vehicles and resulted in fewer trade-ins. So when buyer demand picked up late in the year, fewer used vehicles were available.
Compounding the shortage, rental car companies and other fleet buyers — normally a major source of used vehicles for dealers — have been selling fewer now. With travel down and fewer people renting cars, the fleet buyers aren’t acquiring as many new vehicles, and so they aren’t off-loading as many older ones.
“It’s like a weird perpetual motion machine right now with pricing,” said JeffGoldberg, general manager of Goldie’s Motors, a used vehicle dealership in Phoenix.
Charlie Chesbrough, senior economist for Cox Automotive, predicted a tight used vehicle market with high prices for several more years.
“There are millions fewer used vehicles that are going to be available starting next year, 2022 and 2023,” he said.
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