Many people looking to replace or buy a new car will often look to used cars first. Used cars can save a huge amount of money as opposed to buying a brand new vehicle. However, as a result of many factors over the past couple of years, used car prices are not dropping like they once had. Many of the cars that are on the market in recent years are starting to hold their value more than ever before.
One of the main reasons people buy used cars over new cars is because vehicle prices depreciate. In fact, a new car will depreciate up to 20% in value the second it has been driven out of the dealership. However, this has recently changed as used car prices are starting to rise.
Studies conducted by internationally recognized platforms that connect buyers and sellers have identified a 40% or more increase in average used car prices. This median of used car prices continues in an upward trajectory. And this was before COVID-19 related disruptions and setbacks!
There is an international inventory shortage of new and used cars across the world. This is due to the increasing population of drivers that are purchasing used vehicles. Consumers are buying used cars due to the price of new vehicles selling for record highs.
Experts are attributing the price increases to supply chain issues and chip shortages across the world as well. The shortage is mainly coming from Japan and Taiwan where most computer chips are manufactured. New car production has also slowed down significantly with the shortage of microchips. This will continue to have an effect on the prices of used cars until the high demand is met.
According to studies conducted by the likes of Kelley Blue Book, JD Power, and more, they have also identified that normal cars, such as sedans, hatchbacks, and coupe vehicles are experiencing higher price increases compared to SUVs and pickup trucks. The average price for standard cars that are 10 years old has increased by 60-100%.
While it is entirely dependent on the make and model of the cars, standard used cars have recently had a 15-30% increase in price compared to SUVs and pickup trucks. It may seem confusing as to why the most in-demand car prices have increased compared to the larger vehicles. However, it is because manufacturers have focused on the higher value vehicles that are in less demand in order to make money as they ride out the chip shortage.
So, will used car prices drop? The shortages of new car inventory and other materials can only last for so long. Analysts are predicting that towards the end of 2022 and early in 2023, prices will begin to decrease as the shortages dissipate, with the supply of microchips increasing to meet demands. With this increase in supply, there will be more new cars on the market. This will help alleviate the pressure on the demand for used vehicles on the market. At this point, a much-needed balance within the market will be restored. After October 2022, prices of used cars can be expected to drop between 20-30%, making cars a lot more affordable and attractive again.
Although it is good news that used car prices will likely drop towards the end of 2022, it is still important that buyers plan ahead. There are still factors to consider when buying a used car. Buyers should still look at factors such as the car age, the make, as well as the model, and the condition of the car they are interested in.
Just because the prices of used cars are expected to drop does not mean that all cheap cars are ideal. With this in mind, buyers should start putting some money aside and do some research on the cars that they are interested in. There is still some time before the end of 2022 leaving buyers with enough time to have their homework done. When the time comes, educated car shoppers will be able to invest in the best-used car for them!