If you’ve been to any used car dealership in the last three years or searched for a vehicle online, you’ve probably noticed the huge price increases. The laws of supply and demand have been particularly punishing in the last few years, starting in mid to late-2020. What caused the surge in prices? The answer has much to do with low vehicle production.
Production and Buying Halts
In the spring of 2020, there was a global halt in automotive production due to Covid-19. The halt lasted for months. Meanwhile, many people stopped buying cars due to factors like financial uncertainty and lockdowns. However, as lockdowns ended, buyers left their houses with cash in hand and started looking for new cars. This resulted in a surge in demand but no similar surge in production.
At this point, the supply chain was already damaged, and there was a shortage of semiconductor chips. This resulted in a drastic reduction of new vehicle inventories to the tune of 3.8 million units, dropping down to 820,000 units by the fall of 2021. Buyers turned to their local used car dealership but quickly found high prices as they struggled to make up the difference.
According to reports from Cox Automotive, pre-Covid used car prices averaged around $19,827 with 65,000 miles. Now, the average price for a used car is $26,686 and the car has 71,000 miles on it.
Drivers Holding On To Their Vehicles
Thanks to high prices across the board, many drivers are holding onto their vehicles. Unfortunately, low-income buyers have been the most negatively affected by this trend. Many automakers have decided to switch focus to higher-end vehicles, which has led to few mainstream offerings being produced. The most popular segments of affordable compact sedan and SUV models saw a 74% cut in production.
Automotive servicing businesses have reported rapidly growing revenue, which supports the trend of drivers holding onto their vehicles. The latest forecasts show that the trend of high car prices is probably not going to change dramatically in the near future.
What To Expect
If you’re looking for a new or used car, you can still expect high prices. Prices for used cars have gone down in the first part of 2023, but they’re expected to rise again in the summer. The inventory for new cars has gotten better in most cases, but prices are still high, and automakers are still focusing strongly on higher-end models. In other words, if you absolutely must buy a new or used car in this market, you can generally expect to pay more than you would have three years ago.
Smart shopping in this market is key, and it’s also important to be flexible on the model you want, as you may be able to find a better deal on some models versus others.
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