If you’ve tried car shopping recently, you might have noticed something frustrating about the used car market. The days of stumbling upon a reliable, affordable used car for a bargain price seem to be fading into memory. Instead, prices are higher, inventories are tighter, and the whole process feels more stressful than it used to be. But why is this happening?
A mix of global disruptions, changing consumer behavior, and economic shifts has reshaped the landscape, making it harder and harder to snag a deal. Let’s break down what’s driving this skyrocketing trend in used car prices and what you can do to come out ahead.
The Perfect Storm Driving Up Used Car Prices
The surge in used car prices didn’t happen overnight. Several factors have converged over the last few years to create what feels like a perfect storm for buyers.
1. Supply Chain Disruptions
The global supply chain has been struggling for years, making it difficult for automakers to produce new cars at the same pace as before. The biggest culprit? A worldwide semiconductor shortage.
These tiny chips power essential systems in modern cars, from infotainment to safety features. When COVID-19 shut down factories across the globe in 2020, chip production took a major hit. Meanwhile, demand for electronics (also reliant on semiconductors) soared as people stayed home, creating a huge backlog for chipmakers.
With fewer new cars rolling off the assembly lines, more people turned to the used car market. This surge in demand, coupled with limited supply, pushed used car prices through the roof.
2. Pandemic-Driven Market Shifts
The pandemic didn’t just affect car production; it reshaped how people think about transportation. Public transit use plummeted as people opted for private vehicles to reduce health risks. At the same time, urban flight prompted many to relocate to suburban or rural areas where owning a car became a necessity.
Even rental car companies, which sold off inventory en masse during the early days of the pandemic, began rebuilding their fleets as travel rebounded. With a tighter supply of used vehicles, rental companies scooped up available inventory, indirectly competing with everyday buyers.
3. General Inflation
Inflation has been a buzzword in the news lately, and it’s affecting everything—including the cost of cars. Rising costs for materials, labor, and shipping have made everything more expensive to produce. Even used cars weren’t spared, especially because higher new car prices have forced more people to look at budget-friendly, second-hand options.
Between 2020 and 2022, used car prices saw a dramatic increase of about 40%. Although prices have started to stabilize somewhat, they remain stubbornly high compared to pre-pandemic levels.
4. Decreased Supply of Older Vehicles
Another important factor is that people are holding onto their cars longer than they used to. The average age of a vehicle on U.S. roads is now over 12 years! Advances in car technology and engineering have made vehicles more durable, meaning fewer older models are reaching the used car market.
Additionally, when someone does decide to sell, dealers often snap up these cars to restock shrinking inventories, leaving individual buyers at a disadvantage.
5. Changing Trends in Leasing and Trade-Ins
For a long time, leasing programs played a critical role in keeping the used car market supplied. After leases expired, low-mileage, newer vehicles would flood dealerships as trade-ins. But in recent years, leaseholders have been choosing to buy out their leases rather than trade in for another vehicle. Why? It’s often cheaper than finding a replacement car in today’s market.
How the Used Car Market Has Transformed
These economic forces have made shopping for a used car feel unrecognizable from just five or ten years ago. Listings that used to sit for weeks now get snapped up in days or even hours. Budget-friendly models costing $5,000 or less have all but disappeared. And dealerships are prioritizing higher-end used cars that promise bigger profits over traditional bargain options.
Even online car-shopping platforms have seen price increases, despite offering more selection and convenience. It’s no longer unusual to see vehicles selling for above their original manufacturer’s suggested retail price (MSRP) when new!
Tips for Navigating the New Normal
While the market may feel challenging, there are strategies that can help you stay ahead and snag a better deal. Here are some tips to make your hunt for a used car more productive:
1. Be Flexible with Your Search
Expand your search radius and consider a wider range of makes and models than you might have previously. If you’re set on a specific brand and trim level, the competition could be intense. Broaden your options to improve your chances of finding something suitable.
2. Time Your Purchase
Used car prices tend to fluctuate based on the time of year. Shopping toward the end of a month or during the fall can sometimes yield better prices, as dealerships may feel pressure to move inventory or meet sales quotas.
3. Check Private Listings
While dealerships remain a popular choice, don’t overlook private sales through platforms like Facebook Marketplace, Craigslist, or classified ads. These sellers don’t have the same overhead costs as dealerships, which may translate to lower prices. However, make sure to get a professional inspection before finalizing any purchase.
4. Get Pre-Approved Financing
Securing financing ahead of time can give you a significant advantage. Having a pre-approved loan helps you plan your budget and strengthens your negotiating position, since you’re seen as a serious buyer.
5. Consider Certified Pre-Owned
If you can’t find any truly “cheap” cars, consider certified pre-owned (CPO) vehicles. These cars come with inspections and warranties, so while they aren’t the cheapest option upfront, they could save you money on repairs in the long run.
6. Hold Off If You Can
If your current vehicle is still running and reliable, waiting may be your best bet. The auto industry is already working to address supply chain challenges, and prices may soften again as conditions stabilize.
