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How Did We Get Here? A Breakdown Of Astronomical Used Car Prices

The Used Car Bubble Explained
Leo Shvedsky
August 18 2021
Photo Credit Justin Tang/Canadian Press 

If you’ve been shopping for a used car over the last year and a half, or know a car guru or two, then you probably have heard that something bizarre is happening with used car prices. Normally the used car market is the bastion of the economical consumer who is tired of lease cycles, or just wants a decent car without a premium thrown on by new car dealers. But, as with most things, the pandemic has turned everything upside down. (At least we have a new scapegoat outside of blaming Gen-Z buying patterns) In order to get your hands on a low-mileage second-hand car these days you likely need to shell out more than you would for a brand new one. The question is: How did we get here? 

An analysis conducted by recently found that, of all the used car sales in June 2021, the average price of a used car increased by 32% over prices around the same time in 2020. That increase followed a steady rise over April with a 16% increase over 2020, and May with a 26% increase over 2020. That is mind-blowing! As of this writing we could not find any evidence of car prices soaring like this in any American market economy in the past. That includes the great depression (though, not that a lot of used car data exists from nearly a hundred-years ago). 

The issue began to spin out of control back in August of 2020 when used car prices surged 5.4%, which even then was the highest surge seen in over 50 years - seems quaint now. This can be directly attributed to pandemic-fueled factory shutdowns in March and April, meaning the new cars weren’t rolling off the production lines and replacing sold-off inventory at dealerships. Low-mileage used cars in stock suddenly became a lot more valuable to sellers (who then raised the prices), and to consumers (who then paid those prices) … AKA Economics 101.

Source: BLS, St. Louis Federal Reserve 

Fast forward a bit to September 2020, and Labor Day, typically a great time for car deals. Now, here’s where it gets really strange, fewer used cars were sold in that time than in 2019. That means used cars weren’t selling as much, but prices, in spite of that, still stayed high. That is like Economics 101 in Bizarro world. The end of 2020 saw a drop in used car sales overall, but a 15% spike in prices 

The pricing trend remained steady with most pandemic-related shutdowns continuing into early 2021, bringing us to the situation we have today - the astronomical amount of 32% higher prices for used cars than previous years, but somehow also a lower sales volume. There is, however, some light on the horizon for buyers of used vehicles. There are reports of new car productions ramping up in line with vaccinations climbing and the economy opening back up in general. This has led some to believe that prices should start to steadily fall again.  

In the meantime, if you are in the market for a used car, the best thing to do is likely just wait for prices to come back down and maybe tack a Lambo poster or two on your wall, while you’re waiting.  




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