After the COVID-19 pandemic broke out, the prices for used cars in the US skyrocketed. In this article, we will analyze the reasons for this phenomenon and will try to predict what will happen once the pandemic is over.
During the COVID-19 pandemic, the demand for used cars in the US has increased considerably. People became afraid of using public transportation for the fear of catching the virus — but not all of them could afford a new vehicle. Many potential buyers were surprised to see that the prices for second-hand autos have skyrocketed. But you should not blame dealers or private vendors for their desire to cash in on the consumers in such a difficult situation. In this article, we will impartially analyze the factors that influence the pricing policies on the used car market today and will try to make forecasts for the post-pandemic future.
What Is the Fair Price for a Second-Hand Vehicle?
According to statistics, the price of an average brand-new auto plummets by 23% during the first year after you purchase it. This is why it makes sense to buy cars that are 1 year old and remain in good condition. However, this is just a generalization that might be untrue in certain market environments — and in emergency situations, such as the coronavirus pandemic.
Since the beginning of 2020, used car prices started to grow. Last summer, the average cost of a vehicle in the US was $21,558. That was a record already — but the prices keep on increasing! Of course, you can find worthy autos cheaper than $20,000. But you might need to discard the brand, model, or color that you were initially dreaming of for the sake of something more affordable.
Why Did the Prices Go Higher During the Pandemic?
In a normal economic situation, second-hand autos become available for sale because people get rid of them when buying new ones. Otherwise, their lease might end and the car would be sold. Plus, rental companies regularly renew their fleet and get rid of the vehicles that they do not need anymore.
But because of COVID-19, rentals had to temporarily stop. The costs of manufacturing new cars skyrocketed because of supply chain failures. People would be afraid to invest in new autos because they were not sure whether they would keep their job and salary in the next few months. They would stick to their old vehicles until the situation stabilizes. The supply of used cars could not satisfy the demand anymore and the prices for this type of transportation began to grow.
Fortunately, most manufacturers have already restored their supply chains. Today, people are not as prone to panic as one year ago and life is slowly but steadily coming back to normal. Once we overcome the pandemic, the prices will be unlikely to come back to pre-COVID level — but they will not be as high as now either.
How Did Businesses and the Government React to the Rise of Prices?
The measures that the government and businesses took to overcome the crisis contributed to a further increase in used car prices. The Internal Revenue Service distributed stimulus checks to US residents so that people would pay their rent and bills. However, millions of Americans used this money differently. They invested in cryptocurrencies, purchased electric appliances and sports equipment. Many second-hand auto dealers, such as Rolls Auto Sales, reported that people bought old cars with the funds that they received from the government. In some areas of the country, the sales of used cars in 2020 were higher than in 2019. The Detroit metro area, for example, had one of the worst COVID-19 infection rates on a national scale. According to J.D. Power, the sales of second-hand autos in Detroit in 2020 were considerably higher than the previous year.
Suspended car repossessions are also responsible for the limited supply of used cars. Before COVID-19, if the car owner missed just one or two payments, the bank that had given them a loan would repossess the car. But during the pandemic, most brands began to put up with 90-day or even 120-day deferrals. That was a noble decision and it helped many Americans to make ends meet. But auction blocks got fewer repossessed cars, which eventually led to an increase in prices.
New Vehicles Are Becoming More Expensive Too
This trend is not related to the coronavirus and it will not fade away after the pandemic. These are the main reasons that can explain the soaring prices of new cars.
- Advanced technologies. New autos have heated seats, LCD monitors in the seats, a GPS, parking assistance, collision avoidance, and many other amenities. Even though these commodities become more affordable and widespread every year, they are still pricey.
- Increased amount of raw materials. Cars are becoming larger and more comfortable. To produce them, manufacturers use more steel. If compared to cars of the previous generations, modern high-strength steel frames are lighter and safer in a collision — and they are costlier.
- New regulations. Many national governments impose new limits on vehicle emissions. Also, they introduce new manufacturing standards that auto factories need to adjust to. To meet the updated demands, car manufacturers invest huge sums in research and development — and then in implementing innovative solutions.
In this vicious circle, new cars get more expensive because they are better than their predecessors. When an expensive vehicle gets old, it will not become as cheap as a simpler model would do in the past.
Sooner or later, the pandemic will be over. But the prices of both used and new cars will not come back to the 2019 level. They will not be as sky-high as they are now — but they will not plummet either. Most experts believe that the prices will be decreasing gradually during a couple of years after the end of the pandemic. If you need to buy a used car urgently, you might consider doing it now — but try to be not too picky. Instead of sticking to a particular brand, model or color, be flexible and compare multiple options. Look for second-hand vehicles both online and offline and inspect them meticulously before the purchase.