Why are used cars so expensive and when will they drop in price | El Nuevo Herald Used car prices continue to rise. Find out here why and when they could go down again

Used car buyers have been hit by prices due to rising vehicle costs, and it is feared the price hike will continue.

Those shoppers, some of whom are hesitant about rising costs out of necessity, are getting angry. The average price of a used car in November, according to dealer Edmunds.com, was $29,011. This is a strong 21.4% increase over the same period in 2020, when the average cost was $22,679.

More than two million used car buyers are buying "vastly overpriced used vehicles" monthly, KPMG said in a December report.

Here's a look at the rising cost of used vehicles, which experts say is being driven by the new car market.

'historic highs'

The average price of a used car rose in every month from February to November 2021, according to data from Edmunds. December figures were not available.

The spike started years ago, but it got worse in 2020. In January 2016, the average cost for a used car was $18,661, and prices have risen steadily before a sharp spike last year.

"Used car prices are regularly breaking all-time highs as a new car shortage drives buyers to the only other option, the used market," said Ivan Drury, senior manager of research at Edmunds, in a statement to McClatchy News.

It's not just Edmunds, as Kelley Blue Book has also taken notice of the high prices. Kelley Blue Book said last month that its average used car sales price in November was $27,569, a 27% increase from a year earlier.

KPMG called the rise "unprecedented" as its decades of data shows "nothing like 2021."

“I have never seen anything remotely close to this; it's crazy,” veteran Nebraska car dealer Jeff Schrier told The Associated Press. "It's pretty frustrating for a lot of people right now."

Shortage of chips has an effect on the rise

A worldwide shortage of microchips for new vehicles has pushed up the prices of new vehicles, which in turn has affected the market for used vehicles.

"Chip suppliers closed their own factories early in the COVID-19 pandemic to protect the health of their workers," Kelley Blue Book said. “Once they were able to resume production, the economic slowdown caused by the pandemic led automakers to cut their orders.”

Chip makers were overwhelmed by demand as buyers "rushed into electronics" as the economy began to recover, according to Kelley Blue Book.

Factories ended up closing when they couldn't finish building cars, according to AP. The shortage meant a shortfall of about eight million vehicles in 2021, according to Consumer Reports.

Just like used cars, the average cost of new cars has also skyrocketed. Edmunds says the average price of a new car in November was $45,209, an increase of almost $5,000 since the beginning of 2020.

“It's the same thing that's happening with cottage cheese and houses and everything right now. I mean, it's inflation and we've seen it in the car market,” Jay Leonard, the owner of Preferred Automotive Group, told WANE. "When you have new cars that are not manufactured, and the only thing there is are used cars, the price is going to go up."

What else is causing the price increase?

The shortage of workers has also caused fewer new vehicles to be built. Kelly Blue Book said automakers had more than 584,000 job openings in October that they couldn't fill.

Fewer new vehicles on lots also means fewer people are selling their old vehicles. This has caused a shortage of used cars, driving up the price.

“There are also limitations on the supply of used cars due to fewer trade-ins in new car sales, lease returns not coming back at their usual rate, and car rental agencies unable to release used inventory due to the lack of new replacement cars,” Edmunds' Ivan Drury told McClatchy.

Some dealers that often had hundreds of used cars on their lots now have fewer than 10, according to KPMG.

"Both Ford and GM report sharp declines in rental return rates," KPMG said. “In 2020, more than three quarters of their rental cars were returned. By mid-2021, that figure had fallen to 10% for GM and 34% for Ford.

When will prices stop rising? They will do it?

Experts are mostly gloomy on their prospects for the used car market in 2022. In part, because chip shortages remain a problem in the auto industry.

“It will take another year or two for the industry to catch up with demand,” Patrick Gelsinger, CEO of Intel, told investors in July, according to The Register.

Kazunori Ito, director of equity research at financial services giant Morningstar, sees the turnaround as early as 2023. He said in August that “the current crisis is due to a lack of production from suppliers as (automakers ) try to buy more components than they need,” according to Market Watch.

According to KPMG, determining when the increase will stop may also depend on inflation.

"If prices continue to rise, it could create a new floor for new and used car prices," KPMG said. “Raising interest rates to curb inflation could also reduce consumer demand, putting downward pressure on prices and bringing back aggressive spending on incentives. The other factor is how quickly the industry resolves supply chain issues and ramps up production.”

High used car values ​​can be expected throughout the year, Edmunds' Drury said. Leonard, the owner of Preferred Automotive Group in Indiana, is hopeful that "this will all be in the past" by early 2023, he told WANE.

Which vehicles are most and least affected?

An analysis by iSeeCars.com says that the prices of the Nissan LEAF, Misubishi Mirage, Chevrolet Spark and Kia Forte have increased the most from November 2020 to November 2021.

The LEAF, according to the analysis, went from an average price of $8,404 to $21,524.

“While used car prices for all electric vehicles have risen in recent months, the dramatic increase in used Nissan LEAF prices could be attributed to the 2018 model year, which featured a significant increase in the EV range, performance enhancements and an exterior facelift, and which only entered the market this year in substantial numbers,” said Karl Brauer, senior analyst at iSeeCars.

The website said the Volvo XC90, Nissan Titan XD, Porsche Macan and INFINITI QX80 saw the smallest price increases from August 2020 to August 2021. The list is dominated by luxury SUVs, including the XC90. which has grown in price by only 9.3%.

Are you looking for a second hand car? Here are some tips

A used car, if you can afford it, is one of the best investments you can make, market researcher Jim Bianco told CNBC last month.

“If you want to know what is the best investment you are likely to have in 2021, it is that car that is in your driveway or in that garage,” Bianco said. “It is appreciating faster than the stock market and lately faster than some cryptocurrencies.”

He encourages people who are buying used cars for resale to do so now, "because it's only going to get more expensive."

If you need a used vehicle, Kelley Blue Book encourages buyers to broaden their search, be patient, understand the times, and not jump at the first offer.

“It may (make) sense to keep your current car for another year if you can,” Kelley Blue Book said. “If you have to buy, be prepared to take very good care of your next car so it will keep going for a long time.”

JD Power CEO David Parris said now may be a good time to buy a new car, according to the AP. Although new car prices are also rising, they are doing so at less pronounced levels.

“If you look hard and are willing to wait and travel, you can find deals on most brands,” Paris told the AP.

This story was originally published on January 8, 2022 at 8:30 am.