If you’ve recently considered buying a new or used car, you’ve probably walked out of the dealer lot with serious sticker shock. In March, the average used car price rose more than 35% from 12 months ago, according to the Bureau of Labor Statistics.
It has been that way for months: while the March inflation figure for used cars was slightly lower than it had been in the previous three months, it was still the 12th consecutive month of double-digit inflation for used cars.
Much of this sustained price increase can be attributed to the global shortage of microchips that continues to slow production of new vehicles, says Brian Moody, editor at Autotrader. “The lack of availability of new cars puts pressure on used cars, which then pushes up prices” across the board, he says.
Additionally, fewer transactions for new cars create its own shortage of used cars, since these potential buyers are not trading in or selling their old vehicles. These supply issues for new and used cars are going to be with us for some time, says Ivan Drury, senior manager at Edmunds.
“Even though [automakers] were to get all the chips they needed, we wouldn’t see this situation with supply and demand on the bright side anytime soon,” says Drury. “There will be a huge lag between these new car sales with trades resulting in enough supply for the [entire] American market.
Smaller, fuel-efficient used cars get the best price
High inflation doesn’t just affect cars: everything is more expensive right now. The Consumer Price Index measured headline inflation at an all-time high of 8.5%, much of which was due to the rising cost of housing and fuel.
Russia’s invasion of Ukraine sent gasoline prices up nearly 20% from February to March and nearly 50% from 12 months ago, according to the BLS. This budget shock has had a direct impact on the demand for smaller, fuel-efficient cars, according to recent analysis by iSeeCars.
Of the 10 used car models that have seen the biggest price increases over the past year, 4 are hybrid or electric cars and 8 are classified as compact or subcompact cars.
It’s not surprising, says Moody. For years, “the most economical cars to own over a long period according to Kelley Blue Book are subcompacts, compacts and hybrids,” he says, because they often have great financing terms and don’t not depreciate as much as other cars. .
These economic benefits are only compounded when gas prices rise, Moody’s says.
Trade-in car owner is ‘the luckiest person in the world buying cars right now’
Sustained demand and a general lack of supply means potential car buyers are virtually out of luck when it comes to getting new wheels, Drury says. His best advice for buyers? “Reset your expectations: the market has completely tipped in favor of the sellers.”
This means that at a minimum, you’ll probably pay the list price for a new car to get it off the shelf, and the price of that used car you’re considering now could be what you would have paid for a new car just 18 months ago, Drury said.
“Don’t expect to waste a lot of time negotiating,” he adds. “When multiple people are looking to buy this car from you as the sole seller, there’s really no incentive to negotiate.”
Video by Stephen Parkhurst
However, if you’re thinking of trading in your car or handing over your lease sooner, now is the time to do it, says Drury. Even if your current car is a few years old and you’re still making payments, you could still be making money from its sale.
“People don’t understand that. Just because you’re making payments doesn’t mean you can’t sell that car,” Drury says. In today’s market, trading in your car or even selling it to a third-party dealer, like Carmax or Carvana, could earn you enough money to pay off the rest of the car loan and maybe even have some, he says.
Even people with used cars in the 5-10 year old range or with high mileage can sell them for the best price right now if they are in good condition. Even 10-year-old vehicles are selling 35% more than last year, according to Edmunds data. The key for sellers is to shop around for their vehicles to see who offers them the best price.
“If you have a trade-in, you’re like the luckiest person in the car-buying world,” says Drury. However, the younger your car, the more likely you are to recover and possibly even profit from the sale of your car.
“It doesn’t matter if your trade is three years old or if it’s one year old,” Drury says. “If it’s only a year old, you’ll probably get the same price you paid for that car upfront. So you’ve been driving for free for a year.”
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