Prices for used cars are soaring, which may be a bummer for consumers who are in the market for a vehicle. But the unexpected trend could be a boon for automobile owners looking to trade in or sell their cars.
Older cars are having a moment because of a shortage of new vehicles across the industry. In March, new vehicle inventory at US dealerships dropped 36 percent, compared to a year earlier, according to analysts at Edmunds, a car research site. As a result, prices for both new and used cars are on the rise, but prices for used cars are climbing at a faster rate.
Used car prices reached a five-year high in November, according to CarGurus, a research website that allows users to compare prices for new and used cars.
In February, the average cost of a used vehicle jumped to $23,643, up from $21,020 a year prior, marking a 12.5 percent uptick, according to the National Automobile Dealers Association.
In that same period, prices for new cars increased by 7.3 percent.
“We are seeing a strange phenomenon where used cars are selling well over their value and are actually worth more on a proportional basis than new cars,” said Mike Landau, CEO of mobility hub company ParkMyFleet.
There are a number of factors at play, which have contributed to the nationwide vehicle shortage, thereby driving up the price of used cars. The most pressing issue is a dearth of semiconductor chips, which power many everyday electronic products, including various components of automotive vehicles.
When the Covid-19 pandemic first hit last year, car manufacturers, and other companies that rely on microchips to manufacture their products, scaled back on their chip orders, believing customers would shop less, according to Bloomberg. Instead, demand for many chip-powered electronics increased, and the automotive industry was left with fewer chips than it needed to meet the current demand for new cars.
Another contributing factor was the decimation of the rental car industry. Rental car companies typically update their inventory every year or so with new vehicles, and sell off the old ones to the used car market, according to the Los Angeles Times.
But when the pandemic hit, and business essentially came to a halt, rental car companies nationwide sold off their fleets, limiting the number of used cars currently available for purchase.
This has created an auspicious opportunity for car owners. The average value of a trade-in was $17,080 in March, a 21 percent increase from the same time a year ago, USA Today reported, citing research from Edmunds.
Owners are finding similar luck in making sales.
Used vehicles that are only several years old and have low mileage are selling anywhere from 75 to 80 percent of their original sticker price, Ivan Drury, an auto industry analyst with Edmunds, told CNN.
For example, a new Kia Soul LX costs $17,724, Motor1 reported, citing TrueCar data. But an identical model from last year, with 5,000 miles on, sold for more — $18,500 — on Manheim Auctions, the largest automotive auction website in the world.
“If you have an extra car to sell it’s a great time — there may never be another time greater than this,” Eric Ibara, director of residual values at Kelley Blue Book, a subsidiary of Cox Automotive, told the Los Angeles Times.