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Used car prices are rising, supply is falling and it’s going to get worse before it gets better for people who need an affordable automobile.
Car dealers are passing on higher costs to buyers as demand soars following the pandemic-related collapse of the auto industry and the subsequent economic recovery, Wall Street Journal reported.
Supply-chain shortages are further exacerbating the problem. There aren’t enough semiconductor chips to go around. The electric circuits have many components such as transistors and wiring that form the integrated circuits used to power computers and cars. The crisis has been nicknamed “chipageddon”. The shortage could last until 2023, said Glenn O’Donnell, a vice president research director at advisory firm Forrester, CNBC reported.
“What is normally a depreciable asset has been appreciating,” said Phil Maguire, who owns Maguire Family Dealerships, a group of 13 stores in New York state. “It’s certainly surreal, and I guess we can all agree that it’s an anomaly.”
Here are five things to know about the skyrocketing used car prices hitting supply.
The average price paid for a used car hit a record $25,463 in April, about $2,800 higher than a year ago, according to research firm J.D. Power. It’s the first time that the average preowned vehicle price exceeded $25,000. These record used car prices alone helped raise the U.S. consumer price index, which measures inflation, to a 13-year high, according to Andrew Grantham, an analyst at Canadian investment banking firm CIBC Capital Markets, Marketwatch reported.
The hot used-car market is benefiting some consumers who find they have more equity in their vehicles, Wall Street Journal reported. The average trade-in value for a used car rose to a record $17,080 in March, about $3,000 more than a year ago, according to Edmunds.com. This could help new-car buying, said David Christ, group vice president and general manager for the Toyota division at Toyota Motor North America. “Customers that might have owed more than the car was worth suddenly now are breaking even or even bringing equity to the new car deal,” Christ said.
To score a good deal, don’t follow the traditional car-buying strategy of shopping around, experts told MarketWatch. Instead, they recommend some new strategies. Act quickly if you want your model of choice in your price range, said Karl Brauer, an executive analyst at auto research firm iSeeCars.
A limited inventory of used cars are contributing to the record prices for used cars. In April, it took 43 days on average for a dealer to sell a used car, compared with 47 days in March, MarketWatch reported. That “indicates used vehicles are selling very quickly now,” said David Paris, a senior manager in the market insights division at J.D. Power.
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“If you don’t need that vehicle right now, just wait,” said Ivan Drury, an analyst for car-shopping website Edmunds.com. “You are not going to get anything you want, whether that be the price, the selection or those little things that you really don’t want to compromise on.”
If you can expand your car dealership search radius, it could improve your chances of finding the car you want. About 2 million new and used cars could be delivered to your home, according to Cars.com. Some dealerships may offer at-home test drives, said Kelsey Mays, assistant managing editor at Cars.com.
People are more comfortable shopping for cars online, according to a recent study from KBB.com parent Cox Automotive. However, experts advise buying at reputable dealers.