Is Your Used Car Worth More Than When You Bought It?
Dear Rich Lifer,
The world of U.S. car and truck sales has been turned on its head. In normal times, cars are commodities that begin to depreciate in value the second you drive them off the lot.
But now, customers are eager to get their hands on any type of vehicle, new or used, and are willing to pay much higher prices to get a set of wheels.
The pandemic and the global chip shortage have caused chaos in the auto industry. These two forces are causing the supply of new cars to dwindle; therefore, used car prices have risen to record-breaking levels.
Today we will explore this ongoing trend in the automobile industry and make some predictions for the future of both new and used car sales.
And you’ll discover some tips for getting top dollar for your car!
Dwindling Supply of New Cars
Jessica Caldwell, executive director of insights at Edmunds, an American online resource for automotive information, says that the scarcity of new cars is the biggest factor driving used-car sales.
This all started in April and May of 2020 when the pandemic forced the shutdown of many U.S. automotive factories. This cut production and limited inventory, even though demand remained strong.
Car shoppers have been turning out in near-record numbers with their built-up pandemic savings burning a hole in their pockets, but factories have been unable to meet the demand.
As a result of the new-car shortage, people are extending their leases; therefore, there are fewer trade-ins.
Additionally, rental companies, which are usually a great source of used cars, are now buying used cars themselves to rebuild fleets that were sold off during the pandemic.
Alex Yurchenko, senior vice president of data science for Black Book, explains:
We still don’t have a lot of repossessions going to market, rental companies that typically sell hundreds of thousands of units a month. Right now they’re not selling anything, because they cannot buy new vehicles… so you have that shortage of used inventory that pushed prices up on the used side.
According to research firm Wards Intelligence, dealers started June with about 1.5 million vehicles on their lots or headed to stores, down 42% from the same time in 2020 and down 23% from the start of May.
Joe Shaker, owner of Shaker Automotive Group, recently remarked, “We really don’t have enough cars to go around.”
The scarcity of new cars also has a lot to do with the ongoing computer-chip-shortage…
Microchips Out of Stock
When factories shut down last spring, computer-chip makers had to switch to manufacturing semiconductors for phones, laptops, gaming systems and other consumer electronics.
As a result, there is now a huge shortage of automotive chips that are needed to produce new vehicles.
Ford just announced that it will cut output across more than a half-dozen U.S. factories in July because of the computer-chip shortage. Right now, Ford has thousands of vehicles assembled and parked in lots, but they are missing computer chips.
Ford hopes that by curbing production, it can focus on moving out the waylaid models.
Analysts and car executives believe that this new trend of empty dealership lots, eager shoppers and steep pricing will continue for at least the rest of the year.
So, as we mentioned, these two trends are resulting in used-car sales skyrocketing. Let’s explore…
Used Cars Take Center Stage
According to the Labor Department, used vehicle price increases accounted for one-third of the large rise in inflation last month.
Prices increased a record 10% in April and another 7.3% in May, as inflation spiked 5%, the biggest 12-month increase since 2008.
Edmunds.com reported that the average used vehicle cost $26,457 in June. Edmunds’ Jessica Caldwell explained, “Rising used car prices are a trend that we noticed last summer, and it has really intensified in the past few weeks.”
Black Book, which tracks car and truck data, revealed that used vehicle prices on average have climbed 30% in the past year.
As a result, we are seeing situations where used cars are actually worth more now than when they were originally purchased, a never-before-seen trend.
John Hammer, President of ADESA, explains:
Normally what happens, though, is prices are somewhat capped by new cars. So you’ll see used car prices rise and rise, and eventually, they’ll just kind of cap out because they get so close to new car prices that people switch over to buying new cars. But with the new car inventory being so short due to the chip issue, new car prices are rising as well. Our economist tells us “it’s the perfect storm meeting the perfect drought.”
Used car prices are expected to continue to keep rising this summer.
So how can you take advantage of this position if you are a used-car owner?
Your Used Car is an Asset
If you have a used car, now is the time to check its worth. Websites like Edmunds, Kelly Blue Book, CarMax, and CoPilot allow you to search your vehicle to determine its current value.
Consider the possibility of selling your car for a profit, especially if you have other debts like credit card bills to pay. It could be more advantageous to sell your car, pay down debt, and use your new good credit to apply for an ultra-low interest loan to buy your next vehicle.
If you decide to sell, you can either sell straight to a consumer or to a dealership. Both have pros and cons.
Selling straight to the consumer will make you the most money but requires the time and effort to meet with potential buyers, likely strangers from Craigslist.
Selling to a dealership requires you to be willing to negotiate the price of the car, but it will keep you from dealing with potential scams and will cast a wider net to sell your vehicle.
You may also want to consider refinancing your auto loan. Because the value of used cars is increasing, you have a rare opportunity to qualify for a better interest rate on your car loan!
To a Richer Life,
The Rich Life Roadmap Team