The origins of the current used car market crisis can be traced to a time when COVID-19 pandemic shutdowns were at their worst in the summer of 2020. Car dealerships were forced to shut down and the way that Americans buy cars was drastically changed—the option to go into a dealership and speak with a salesperson was no longer available.
After a quick dip in June, prices for used cars continued to rise until January 2022, with the average price increasing more than 50% in less than two years.
Why did this number rise so much over just a year and a half? And what should we expect going forward? Car insurance
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payment is more manageable. Why are used cars so expensive?
There’s no denying that used car prices have skyrocketed in the last two years. COVID-19 devastated a plethora of economic systems and led to many imbalances. Here are a few specific pieces that were set into motion at the onset of the pandemic.
Supply chain crisis
The automotive supply chain crisis is a perfect example of the snowball effect. COVID-19 set in motion a chain reaction of factors that led to a global shortage in things like toilet paper, PlayStation 5s, and microchips used to make everything from robotic vacuums to cars.
This happened in part because millions of people around the world started working and learning from home—and to make remote work or learning feasible, the world suddenly needed more computers. Companies were unable to meet that demand.
To make matters worse, multiple microchip production facilities around the world have been affected by disasters like severe weather and fires, and the Russia–Ukraine war continues to also play a part in affecting global supply chains.
Inflation
Even the average cost of a new car rose by 12.6% from May 2021 to May 2022, and all goods increased by an average of 8.6%, the highest inflation in over 40 years. COVID-19 left millions of people out of work, and the overall reduction in American GDP was significant—far worse even than the 2008 recession.
The United States dollar has inflated by an average of 4.57% since 2019
. But the relationship between used car market trends and inflation is somewhat of a chicken/egg situation—used car prices are being driven up by inflation, but this crisis is also feeding back into inflation and making it even worse. Not enough new fuel-efficient cars to meet demand
Everyone at this point is likely quite aware that gas prices in the U.S. have reached record highs. In turn, many people are choosing to switch to more efficient vehicles and demand for hybrids, EVs, and highly efficient gas-burning cars has skyrocketed at a much faster rate than most car manufacturers could meet in supply.
Vehicle manufacturers have suffered major losses this year, unable to surmount many of the challenges of the supply crisis to meet demand for vehicles powered by alternative means. Many buyers are reporting waiting 1 to 2 years for a new car that they’ve ordered.
Of course, this backlog means that buying used is a popular choice. In some cases, used cars are selling for more money than their original purchase prices because no one can get their hands on newer models fast enough. Tesla is a prime example, as buyers would rather pay more for a used 2019 Tesla Model 3
that they can get now than wait for a new one for less money—and this phenomenon is driving up the average price of used cars across the board. RECOMMENDEDNo spam or unwanted phone calls · No long forms
Buying and selling used cars in 2022 and beyond
Most experts agree that vehicle affordability—both new and used—will continue to be an issue for the foreseeable future, so long as global inflation rates continue to rise.
If you have a used car and no longer need it, now is a good time to sell—average used car prices are currently at a plateau. On the flip side, if you have a car that’s treating you well, now isn’t the time to upgrade. You’ll likely have no issue selling a used car that’s in good condition for a fair amount of money, but finding a new one could be a challenge.
Simply put, right now is not a good time to be shopping for a new car. Waiting lists are astronomically long for new models, and options are limited due to choked production and supply lines.
As of mid-2022, used car prices have plateaued, which means we’re likely to see a significant increase or dip in average prices very soon.
How to find affordable used car insurance
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