The last year was tough for car buyers due to inventory shortages, rising prices, and dealer markups. The global semiconductor shortage has caused a decline in the production of new cars, leading to increased demand for used vehicles. The list goes through some of the most challenging times in the past 30 years or as long as I have been in the business. More about me here.
I have set out to give you an inside look and my perspective on whether or NOT it’s a good time to get that new or pre-owned car.
My current car shopping market score is 10. Zero is the worst market to consider buying a vehicle, and 100 is the absolute best. So it is trending in the right direction, and I expect it to improve throughout the year. So please ensure you find the one that matches your current vehicle situation for the best strategy.
POOR time to buy 0-20
AVERAGE time to buy 20-70
GOOD time to buy 60-90
EXCELLENT time to buy 90-100
It is NOT a good time to purchase a Pre-owned vehicle!
The used car market was like the wild, wild West! You probably have seen the headlines and maybe even the crazy stories about the price of used vehicles. Many factors contributed to the massive rise in prices. It goes back to when there were no new vehicles for people to buy. So if you wanted or needed a car, many customers turned to the used market to find something. This resulted in fewer used cars available, compounded even more by a shortage of trades.
NO NEW VEHICLES = NO TRADES = HIGHER PRICES FOR AVAILABLE USED CARS
In 2022 the prices of used cars surpassed what they were sold for as new cars! Incredible, a two or 3-year-old car with 20,000 or even 30,000 miles selling for more than it was new. Now the first finger we want to point is at the dealer, which was confirmed as the supply of used inventory started to dry up. Dealers were getting every penny they could. But we must also remember it was the same problem as new vehicles. So the dealers didn’t know when you could get another car to replace the one they just sold.
Then as the market caught on to the massive shortage of cars, customers wanted and expected those higher values for their trade-in. So if the dealer wanted to get the vehicle, they had to pay more or market value and sell it for even more thus, the prices continued to stay at record levels.
While it has come down from its peak just about a year ago, we still see high prices on used cars on the market and at dealer auctions.
Usually, a late-model used car is a better deal than a new one.
I always suggest a used or OEM-certified car as a great option versus a new one. Let the first owner take the big depreciation hit and get one 1 or 2 years old. However, with the current prices, that needs to make more sense. The savings are not there to justify settling for a used car, probably not the model, color, or trim you wanted to pay so close to or the same as a new one.
Of course, there are always exceptions to the typical market trends, and you might find a killer deal on a couple-year-old. So please make sure you have done your diligence and compared and priced a new version of the exact vehicle.
Some values are higher than others
3-year-old used vehicles are adjusting the fastest due to expiring leases. The prices are starting to normalize but are still higher than ever. The caution here is that they are dropping in value fast, which will continue as new vehicles become more available and more of these are traded in. EVERY vehicle depreciates (aside from the “collector car market). Cars are NOT good investments. If you want to purchase a 2-3 year old one, plan to keep it a while to make sense of the depreciation. Even more so if you get a loan or financing, as most people can’t pay cash. It will be tough to trade in the first few years as the value will drop faster than most can pay down the loan.
4-5-year-old used cars are still much higher than they would typically be as a % of their original MSRP. In other words, this section of the market IS overvalued. This is not only from the shortage but also from the increase in the average price of used cars in general. As a result, consumers are looking toward older cars to find one that will fit their budget.
A $10,000 car is now a $15,000 car! As a percentage, this section of the market has increased the most. And, unfortunately, it has no signs of cooling down. An older vehicle that once was only $5000 or $7000 is now easily $10,000 or more. That is up 100%+ over the past year and a half. You might have even bought one of these 3 or 4 years ago, put 30,000 miles on it, and today you are likely able to get what you paid and probably even more.
However, the market is improving, and I expect it to continue throughout the year. The semiconductor shortage will likely ease in the coming months, leading to increased production of new cars. This will help reduce the demand for used vehicles and lower prices.
If you are in the market for a used car, it is essential to be patient and do your research. However, there are still some good deals to be found, but you must be prepared to act quickly.