Used car prices continue rising as demand heats up
The shortage of new cars that began in 2020 is likely to continue through at least the first half of 2022, automotive experts say. The means higher prices and longer wait times.
“The typical dealership experience that consumers are familiar with – walking dealer lots with rows and rows of cars, negotiating over price and getting many incentives – is not likely to return this year because there are 4.5 million to 5 million consumers on the sidelines waiting for cars,” Tyson Jominy, head of data and analytics for J.D. Power, told CNBC.
Cox Automotive concurs. It found that sales were mostly flat last year, most likely because dealers couldn’t get enough cars to satisfy demand. Sales improved slightly toward the end of December, but it wasn’t enough to move the needle.
“Still, in 2021, sales results are not necessarily the important numbers to consider,” the company said in a press release. “Last year, inventory and transaction price were the data points worth watching, as both moved in historic directions and likely impacted the industry for years to come.”
Used cars becoming the default choice
For consumers not in a position to wait a few months to get a new car, a late-model used car is becoming the default choice. It’s also an increasingly expensive choice.
Data compiled by automotive publisher Edmunds shows that the average transaction price (ATP) for a used car is now just over $29,000, an increase of nearly 28% over 2020. For a three-year-old vehicle, the ATP was north of $30,000 last year.
Jim, of Mooresville, N.C., tells us that he realized it was the worst possible time to buy a car, but he couldn’t put it off.
“Car prices were escalating and availability was down,” Jim wrote in a ConsumerAffairs review. “But I did find the car I wanted on Carvana and the price wasn’t more than expected. Traded in my old car as part of the deal.”
Having a trade-in helps
Having a trade-in helps when buying a used car because dealers need to add to their inventory. Even older model cars and trucks are worth more than they were in 2019.
Paul, of Conway, S.C., decided to buy a late-model used car at Carmax because he had two vehicles he could trade in.
“We got exactly what we wanted in a low mileage SRX for a very reasonable price,” Paul posted in his ConsumerAffairs review. “Carmax…gave me what I wanted for my trade-ins and sold me a car for a reasonable price. I’m 70 so this is probably my bucket list car.”
Experts at J.D. Power say auto manufacturers can reclaim some of this lost market to the used segment by simply improving their websites to make them more consumer-friendly.
“Despite things that are out of the manufacturers’ digital control, like inventory issues, there are some best practices out there that can help mitigate these digital challenges,” said Jon Sundberg, director of digital solutions at J.D. Power.
Sundberg advises automakers and their dealers to optimize website speeds, provide waitlists, and “simply state issues upfront.”