In the market for a used car? First, good luck finding one. But even if you do, you better start saving up because used cars have never been more expensive than they are now.
Used car prices rose 45% to an average of nearly $26,000 in January compared to a year ago, according to the online automotive marketplace Cars.com.
Supply shortages, specifically semiconductors and microchips, are hurting the production of new cars. That scarcity has created surging demand for used cars, driving up their prices.
The economy’s ongoing inflation has caused the price of several common commodities to spike significantly. The prices of used cars, fuel, and gasoline have all gone up over 40% since last year.
The automotive industry has been grappling with the chip shortage since 2020, when the pandemic caused a surge in buying of all sorts of electronic devices that require them, including smartphones and microwaves. In response, Ford was forced to halt production at its Chicago manufacturing plant on Wednesday, placing nearly 5,000 employees on temporary leave, while production pauses at Toyota due to a lack of chips caused the company’s profits to dip 21% in the last three months of 2021.
“New-car-shoppers-turned-used are creating this amplification of pricing on the used car front, and it’s been winding up pretty steadily over the past 12 months,” Kelsey Mays, assistant managing editor at Cars.com, tells Fortune.
TrueCar, another online car marketplace, provided similar data as Cars.com about higher used car prices. It said that used cars are around 41% more expensive now than a year ago.
“This is a record, to my knowledge,” said Nick Woolard, lead industry analyst at TrueCar, told Fortune. “There’s no way it isn’t.”
Meanwhile, prices for new cars are also up. The average cost was up 8% to $38,617, according to Cars.com, while inventory for those was down 58%.
The difficult conditions have led to an upside-down market for car sales. Some new cars models are so hard to get that older used versions of the same cars are selling for higher than their original sticker price. For example, some older versions of SUVs are selling for higher used than new, according to Mays.
“There’s an old adage that when you drive a car off a lot, it’s worth 20% less. Right now, when you drive a car off the lot, it might not be worth that much less at all, it might actually be worth a few dollars more,” he said.
Both Woolard and Mays agree that what needs to happen for prices to return to normal is for chip supplies to increase and new car production to pick up. But neither of them is confident that this will happen anytime soon.
“In terms of broader affordability, it’s going to continue to be a slog,” Mays said. “I think we’re going to continue through 2022, possibly into 2023 to really see this thing unwind.”
Woolard was slightly more optimistic, seeing a bigger readjustment in the cards for later in the year.
“In the second half of 2022, we should start to see new car levels balance out a little bit better with demand, and that is the moment where I think you’ll start to see used car prices start declining,” he said, citing the effects of the higher interest rates the Fed has signaled to be considering over the next few months, which could bring down demand.
