5 Things to Know About the Unprecedented Used Car Market
Leesa Davis
· 4 min read
Early in the pandemic, automakers—like many other businesses—were forced to temporarily shut down their plants. This led to a chain reaction of events that culminated in an unprecedented car-buying and selling market. To better understand the current state of the industry,
Jerry
compiled statistics on new and used auto sales from market experts and government sources.When automakers paused production on assembly lines, plants held off on buying parts from suppliers. These parts included semiconductor chips, which have important functions from improving engine efficiency to making backup cameras function. Chipmakers responded by rerouting supplies to the electronics industry.
By the summer of 2020, automakers were already feeling the pressure of needing to build new vehicles while lacking a key ingredient to do so. Meanwhile, the drastic shortage of new vehicles created a surge in demand for used cars and sent prices soaring. More than 40 million used vehicles were sold in 2021: an
all-time high
reflecting a 10% jump from the year before. The supply shortage is expected to last at least into the second half of 2022; Intel's CEO Pat Gelsinger told CNBC in April that he expects the shortage to “drift” into 2024
.Keep reading to learn more about this market shift and how consumer buying behavior has changed.
Almost half of used-car shoppers opted not to buy
After the labor market bounced back amid a quickly reopening economy in 2021, it cooled in 2022 and wages failed to keep pace with inflation. Consumer prices
rose 8%
from February 2021 when compared to the same month in 2022, and rising prices may be a motivating factor for second-guessing big-ticket purchases. Meanwhile, 428,000 jobs were added in April—a slight downtick from previous months.More than two-thirds of adults who contemplated purchasing a new car or home
changed their minds
, according to a March 2022 Morning Consult survey. Among used car shoppers, nearly half (48%) said cost was a determining factor for not purchasing. And that's before accounting for any recurring post-purchase expenses like car insurance
and car loans
.
The average age of vehicles on the road rose to new heights
Americans are holding on to their cars longer, according to
research from IHS Markit
. Ten years ago, the average age of a car on the road was 9.6 years old; in 2021, the average age rose to 12.The continued microchip shortage may be one reason why car owners are holding onto their vehicles. Industry analysts say a mix of soaring car prices and improved endurance (with some cars lasting up to 200,000 miles) will affect consumer car-buying behaviors going forward.
J.D. Power forecasts that if inflation
does not ease, even more consumers may be priced out of the new car market this year.
Used car prices are up from 2021, but have declined since January
Inflation sent prices up over the past year and the automobile industry was no exception. The
wholesale price of all used cars
grew by 9.7% between May of 2021 and 2022, according to Manheim Market Report. Used vans saw the biggest price increase, followed by used compact cars. The upward trend does appear to be slowing: Starting in January 2022, the report recorded decreasing gains.
Many buyers still intend to purchase a used car this year
Despite high costs for new and used vehicles, car buyers are still shopping. A
Statista survey
published on April 21 found that nearly a quarter of respondents planned to buy a car in 2022. Many consumers planning to purchase a new vehicle are now considering used cars even though prices have skyrocketed for both.One advantage: Certified pre-owned vehicles have a comparatively better supply, with 2019 cars especially prevalent. With inventory shortages, many of the “new” cars showcased in dealerships are from the 2019 model year.
Used vehicle sales were down 21% year over year
Used car retail sales
dropped by 13%
between March 2022 and April 2022, according to Cox Automotive research. This is part of a larger industry cooling trend as used retail sales saw an estimated year-over-year decline of 21%. Prices for wholesale used vehicles—cars that dealers buy directly from auctions or other wholesale sellers—saw a slight decline of 1% between March and April 2022.The pandemic’s long-term impact on the car-buying market remains to be seen. Many buyers are increasingly shopping for cars online and seeing fewer offers for markdowns and bargains. As car production ramps back up, many used car shoppers may swing back into the new car market if prices come back down, decreasing the demand for used vehicles.
