Why Have Used Cars Become Unaffordable?

Suffering from Sky High Auto prices? You’re Not Alone

If you’ve been shopping around for used vehicles lately, you know that prices are higher than they’ve ever been. But just why have used cars become so unaffordable, and what does this mean for consumers? Here are some of the driving factors behind our nation’s unaffordable used car market.

Inflation Hits the Auto Market

Inflation is hitting everyday Americans in every aspect of their lives. From housing to grocery costs, to electric bills, a sky-high inflation rate of 8.3% has had many Americans on edge about all things finances. As inflation looms, all industries are being hit, the auto market included.

As prices of goods continue to rise, prices of used vehicles are rising right along with them. The price for a used vehicle is still up roughly 47% from the summer of 2019, though it has ticked down a price point or two. While many analysts and even consumers have suspected that these massive price hikes are going to subside, the reality is, prices are slipping much slower than anticipated.

Global Economic Downturns

A global economic downturn, the result of foreign economic woes and the Covid pandemic, has slowed the manufacturing and distribution of critical Automotive components. Components like semiconductor chips and other critical materials needed to build vehicles are not available in the way they were in pre-pandemic times. As a result, there was a sudden slowdown and at times halt on new vehicle production.

With fewer new vehicles available, shoppers looking for a new vehicle were pushed into the used car space all at once. The used automotive market which was already flooded with shoppers has helped drive prices higher.

Increasing Interest Rates

In an effort to slow down consumer borrowing, the Federal Reserve has continuously hiked interest rates. How does this impact the used car market, you wonder? While the price of a used car has gone up, so has the cost of financing one if you’re going to borrow money.

Taking out a personal loan or an automotive loan to finance a vehicle will now cost you much more than it would have just one or two years ago. Even if you snag somewhat of a deal on your used car purchase, financing options will cost you slightly more over the life of your loan.

High Demand Means Higher Prices

In classic economic fashion, the overall high demand for used vehicles has translated to higher prices. With so many drivers flooding the used car space, sellers have the advantage of marking up used vehicles in order to get higher returns.

The impact of low supply and high demand has even trickled down to private sellers. There once was a time when private owners had a rather small price point window in which they could price their pre-owned vehicles. Today, these same private sellers can ask for thousands more than the vehicle is actually worth. Often, these same private sellers are turning to their local dealers to trade in their vehicles simply because of the high price returns.

Disruption In the Auto Market: Where Do We Go From Here?

As the national and even global economic landscape continues to shift month by month following the coronavirus pandemic, the auto market is slow to catch up and adjust. Unfortunately, for many shoppers, this means high price points for used cars, trucks, and SUVs.

As with all things economic, however, these patterns are cyclical and it’s just a matter of time before all these factors begin to correct themselves. So what does this mean for you as a consumer? While the automotive market will eventually begin to simmer down as prices drop, it’s still a matter of a waiting game.

Until then, Shopping your local dealer, working with local lenders, and shopping for the best deals and incentives is one of the best ways to get into a used vehicle at a somewhat affordable price point.