In light of the COVID-19 pandemic, we saw many changes. Changes in our everyday life, the housing market, the job market, and now the car industry. Due to a shortage of new cars and strong demand, used-car prices have surged and continue to surge. The most recent report from the U.S. Department of Labor shows the highest overall annual inflation rate in 13 years. Used-car prices climbed a staggering 29.7% since June 2020. So what does that mean for people in the market for a new or used vehicle?
New cars aren’t inflation proof. Not only are there inventory shortages, but the price tags for new vehicles have also risen in the past year. The new-vehicle index rose 3.3%, which is the largest such increase in nearly a decade.
The Pandemic’s Effects
Used Car dealerships have been steadily increasing their prices even before the pandemic. However, during the pandemic dealerships across the county were forced to close their doors and consumer demand plummeted. Today, the used-car landscape looks much different. Demand is higher than ever due to a global microchip shortage crimping supply on the new car side. The events of 2020 have culminated in vehicle production delays that, in turn, caused shortages and price spikes for both new and used vehicles.
Vehicle Type
The price inflation for used cars isn’t equal across all vehicle types. SUVs and crossovers rose 43%, while luxury, mid-size and compact cars increased by 40%. The price increase paints a gloomy picture for shoppers looking to buy used, but there may be a light at the end of the tunnel for those who have a vehicle to trade or sell.
Trade or Sell
Due to the increasing inventory shortage, dealers are more likely to offer significantly more for a trade-in depending on the vehicle type and condition. You should get multiple offers on your current vehicle to use as leverage when car shopping. You should also keep the out-the-door total (the net cost of the car you’re buying including all taxes and fees) as your primary focus.