Rising prices confuse buyers
“Is that what I get for $7,500?”
A new report from Edmunds.com via AP at the skyrocketing cost of old car There’s this quote in America from a woman in Omaha, Nebraska, whose car was in a complete accident and who desperately needed basic transportation to get to work. She has the basics, it’s fine – 2013 Scion with 160,000 miles on it.
The US Bureau of Labor Statistics’ Consumer Price Index reported last month that the average transaction price of a used car in November was $26,000. Well, Edmunds says the average has now moved to $29,000. That’s right, increase by 3 thousand dollars in a month.
That’s a 39% increase over the past year (compared to New car deals on average up 13% and, Edmunds said, is averaging $46,000). And used cars are one of the biggest drivers of the 6.8% inflation rate we’re feeling across the economy.
It’s such a rapid and seemingly irrational increase that a lot of people needing a car are undervalued. More than half of U.S. households earn less than is considered necessary to buy a car at that $29,000 price point. In other words, unless or until the trend reverses – and industry forecasters say it won’t happen anytime soon – the days that anyone at any income level can afford an automobile, for commuting in a society based on car ownership, is no more. Gone are the days of a kid using his savings from a part-time job to buy a car for college.
As we’ve been pretty much aware so far, a string of historical events can be blamed for the rise:
- The pandemic shutdown has resulted in auto production shutting down.
- Reduced demand for new car during the lockdown and less inventory, which means fewer purchases.
- People stuck at home bought new computers and other electronics, so semiconductor production diverged from vehicles.
- When the bans were lifted, the economy boomed again and auto production resumed, but hampered by lack of chips.
- The chip shortage led to a new constraint on inventory of new cars, so people who needed cars turned to the used market.
- And rental car companies, which had sold fleets of vehicles during the closure, suddenly bought used cars.
Lower supply and greater demand, higher price response.
Last month, used car prices averaged 63% new vehicle Price. Before the pandemic, the rate was 54%.
Including taxes, fees, 10% down payment, and around 7.5% interest, an average used car now costs $520 a month, even when financed on average for nearly six years. year, Edmunds calculate.
Kimberly Palmer, personal finance expert at NerdWallet, said that in order to make that payment and cover other necessities like housing, food and utilities, a household would have to take home approximately $60,000 a year, or $75,000 before taxes. In 2020, the median U.S. pre-tax household income is $67,521, the Census Bureau said.
“The average person,” Palmer said, “can’t afford the average used car right now.”
Ivan Drury, senior manager at Edmunds, said that while it doesn’t track used car prices against household income, he thinks November marked a record “in the worst way possible for affordability.” .
Monthly payments for a used car averaged $413 two years ago, $382 five years ago, and $365 a decade ago, he noted. The average November payment was $500 or more for a used car, Drury said, which is the average required five years ago for a brand new vehicle.
“People are going to have to make tough decisions, possibly cutting back in other areas,” Palmer said. “It means it’s stressful for many families.”
David Paris, senior manager at JD Power, note that used car prices are tied directly to new car prices. Although some automakers report that the supply of computer chips is gradually improving, the cost of agency at the old car Auction Paris said it continued to increase throughout November.
“We haven’t seen any price drops, which is extremely rare at this time of year,” he said.
New car dealers have approx first Paris says millions of vehicles are available nationwide – just a third of the usual supply. And most of it has already been sold.
Due to pent-up demand from consumers, new car prices are expected to remain at historic highs until supply returns. 2 million or 2.5 million and automakers continue to cut prices, possibly in 2023. Once new car prices drop, pressure on used car prices will eventually follow.
However, even then, the availability of cars will be scarce because of the traditional source of used cars – cars are supplied from rental contract and deals bought or sold by rental companies – basically exhausted.
Over the past decade, cars returned on two- and three-year leases have been the leading source of near-new used vehicles. But that’s when more than a third of new US car sales were rental cars, the number now falling to 22%, said Edmunds‘Dry. Because there aren’t many new cars, people whose leases are about to expire often buy those cars after their lease ends.
Rental companies, another key source of second-hand cars, are currently unable to buy new ones and are keeping the ones they have. Some rental companies even buy used cars. With all those factors in mind, Paris expects the shortage of used cars to worsen by 2024.
Among the few consumers that benefit are those who want to sell a used car and not necessarily replace it. medium barter value in October, Paris said, was $9,000 – double what it was a year earlier.
But for those who do not have the means to do business and have only a modest income, the options are few and none. Nerdwallet’s Palmer says lower earners can simply pay for repair to keep an existing vehicle running for as long as possible. Even that option, though, can get expensive.
JD Power’s Paris says that if they can afford it, buyers should consider a new car. Recently, he made several thousand dollars from the price of new stickers Ram picks up, though he had to travel from the Washington, DC, area to Philadelphia to reach a willing agent he found by searching internet forums.
“If you work hard enough and are willing to wait and travel,” he says, “you can find deals on most brands.”
Contains material from the Associated Press