Could Investing in Used Cars Be a Hedge Against Inflation?

With inflation at an all-time high, some people are looking at different ways to hedge against the rising costs of living. While real estate, stocks, and even crypto are more traditional ways to hedge against inflation, some are wondering if they can add used vehicles to that list.

Whether you’re a savvy investor or are just curious about the state of our economy today, it’s a question that’s popped up time and time again during the past year. Could investing in used cars be a hedge against inflation? With used vehicles jumping 40% over the past year according to the U.S. Bureau of Labor Statistics, it’s a reasonable question to ask when we’re all here for. Let’s take a look at some key factors you should consider before you move forward with this investing strategy.

The Type of Car You Invest in Matters

The type of car that acts as your investment is key. While used cars are appreciating higher than ever, that doesn’t mean every used car will be one worth investing in. Distinctly, we can look at two different categories when it comes to investments: antiques, and your everyday used vehicle.

If you have the right antique, you can be holding onto a pretty penny. But, with today’s supply chain issues, antique repairs or DIY projects are costing more than ever. Finding antique parts to use on your vehicle or even putting in custom order parts can end up costing more than your antique will pay off.

Antiques aside, value investors might want to look at how everyday used vehicles might be a better hedge against inflation. If you’ve got a reliable used vehicle on hand that you don’t necessarily need, it might be worth your while to sell it, especially in today’s economy. The demand for used vehicles is higher than ever, making it a great time to cash in on your used vehicle’s appreciation.

Picking and Maintaining a Used Vehicle Properly

To get the best return on investment, having a used vehicle that offers great gas mileage can be a great way to hedge against inflation as these are the vehicles that are in most demand as gas prices continue to climb. Since this time last year, the consumer price Index shows that the price of gas has jumped up nearly 40% since a year ago. To combat this jump, fuel efficient vehicles are seeing high demand.

The rate of return on a used vehicle is only as good as the vehicle being sold. That’s where maintenance is key. Whether you are thinking about investing in a single vehicle or are looking to invest in three or four, it’s important that your vehicles are properly maintained, stored, and kept up with. Key factors to consider when investing in used include mileage, powertrain condition, and even cosmetic issues. Keeping up the value of your car is directly related to how you take care of your car.

Know When to Sell Your Used Vehicle

As with all investments, you only make money when you cash out. That’s why it’s important to know how long to hang on to your used vehicle and when to let it go. While we saw the highest inflation rate for used vehicles last year, the market is beginning to cool. With experts predicting new vehicles coming back into the market by the end of the year, the demand in the used-car market will simmer down as well. If you’ve got a used vehicle, the next couple of months would be an ideal time to let it go.

Consider How You Will Sell Your Used Vehicle

For most, there are two options to consider when it comes time to let go of your investment. You can bring your vehicle into your local dealership for a cash in, but you may have to do a little bit of shopping around first. Different dealers might offer you a different price depending on what they’re looking for and what you have to offer.

If you want to get the best return on investment, however, putting your used vehicle on sale as a private seller is the best way to go. Selling online through one of the many online auto market platforms is the easiest way to connect to local buyers. The process may require a little more work on your end but you’ll definitely see more of a financial return.

So, Are Used Cars a Good Hedge Against Inflation?

So, are used vehicles a good hedge against inflation? As with all investments, it depends. If you are someone who has interest and knowledge in the used car space, you can make a pretty penny hanging on to used vehicles and then letting them go for a nice return. Even if you don’t have knowledge in the automotive world, If you’ve got a used vehicle, now might be a good time to let it go.

While inflation continues to tick up, the automotive market is beginning to cool. With that cooling comes a drop in used vehicles. Unlike the inflation rate in other markets including real estate, we will see an introduction of new Supply in the automotive industry. This new Supply will eventually bring down the price of used vehicles. While right now might be a good time to sell a used vehicle, it might not be the best option to use Vehicles as a hedge against inflation, especially in the long run.