The Rise In Used Car Prices Explained
You may have experienced sticker shock if you're in the market to buy a used car. The reason is that used car prices have risen in recent months to an extent that exceeds the original MSRP. Vehicles have become an asset that appreciates, something previously unheard of. Consumers are frustrated and annoyed by record-high prices. The simple answer is supply and demand. Record high prices for used cars have been caused by this basic economic principle and the coronavirus pandemic. Let's look closer at the factors that contributed to this price rise and how we got here.
The Impact of the Pandemic
It is clear that the COVID-19 pandemic had adversely affected many industries. The automotive industry is not an exception. Millions of workers had to work remotely in early 2020. This resulted in a slowdown in car sales. Consumers are keeping their cars longer, which means that there are fewer new cars for sale. Without a healthy new car market, the used car supply is reduced and prices rise due to a lack of inventory. In parallel, record unemployment and financial anxiety have encouraged people to purchase used cars rather than new vehicles, which has resulted in greater demand. Simply put, people are queueing up to purchase used cars, but there is not enough supply which drives up the prices.
The Rental Car Crisis
Rental car companies are another reason why used car prices have been so low. Last year, rental car companies came to a halt due to the pandemic. Many of them had to sell most of their cars in order to stay afloat. With the rise in travel, there is a shortage of rental cars. They are desperate to buy used cars and will even pay more to replenish their stock.
A second factor contributing to the increase in used car demand is that many buyers are making purchases they had put off last year due to financial uncertainty. These buyers now have to consider buying a used vehicle because there aren't many new cars on the marketplace. These consumers planned to spend more on a new vehicle, but their budgets are now larger for a used car.
We are now facing an unprecedented shipping crisis. Barges cannot unload at ports and we are experiencing a new level of shipping chaos. This has caused a severe shortage of microchips that are essential for electrical components in new cars. New car manufacturers have been forced to slow down production, leaving consumers no choice but to buy used cars. There is an extreme demand for used cars, and there is not enough supply. This has caused used car prices to soar.