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The used-car market is booming. It is a good time for sellers, but not so much for buyers. There are myriad economic factors that are elevating car prices, pushing inflation, and affecting new-car production because of constraints on material availability and the global chip shortage.
Lauren Donaldson, the senior director of accounts at PureCars, a consultancy that advises dealerships on marketing strategies, says consumer searches for used cars are double what they were a year ago. That means the cars are being sold a lot faster. She advises shoppers to move quickly if they see a car they like.
“The silver lining for consumers is that even though prices are higher, your trade-in will never be worth more than it is today, and that may put you in a better position to purchase a newer car,” Donaldson says. “And if you’re a consumer who recently bought a new car and you’re feeling a little bit of buyer’s remorse, now is a good time to sell and move on to something else.”
According to the U.S. Bureau of Labor Statistics, used-car prices jumped nearly 30 percent between May 2020 and May 2021, although part of that increase comes from depressed used car prices during the first couple months of pandemic shutdowns.
A month ago, the relatively high price of used cars was pushing many buyers toward new cars, but now that a global semiconductor shortage has prompted many automakers to slow or pause production, new cars are more scarce. Now even rental car companies—many of which sold off vehicles during the nadir of the pandemic last year when car rentals and travel in general plummeted—are buying used cars just to bring their fleets back in line with rising demand.
In good times and bad, Consumer Reports members can search our Used Car Marketplace for vehicles for sale in their area, sorting by the factors that matter most. The listings include CR reliability and owner satisfaction ratings, and there’s a free Carfax report for most of the vehicles. Members can also access ratings and information on used vehicles going as far back as 20 years.
Donaldson says that as demand has surged for SUVs and trucks, dealers are more likely to negotiate over the price of sedan models, which have waned in popularity over the past several years. CR has found that typically, sedans tend to be more fuel-efficient than SUVs of equivalent size.
Although used-car prices are rising faster than new car prices, experts say the spike is a double-edged sword. Dealers are trying to snap up as many used cars as they can to satisfy customer demand, and that means you can get top dollar if you’re looking to sell or trade in.
Donaldson says that dealers are most keen on finding cars under 2 years old, and that the 3- to 5-year range is the next most sought-after.
CR experts say that regardless of prices, the bottom line is that you should make a deal when the time is right for you. If it’s now, you can leverage your trade-in to get the best deal possible. If you decide to wait, know that future pricing is hard to predict, especially when global supply chain problems plague automakers.
The semiconductor shortage has put a pinch on the supply of microchip processors automakers need for new cars—the chips control everything on a car from infotainment screens to window motors. It’s the main culprit behind the current tightness in the new and used-car markets, multiple experts say.
The chip problem is compounded by a year’s worth of pent-up demand from people who are starting to venture out again as the worst days of the pandemic appear to have passed, says Nick Woolard, an analyst at TrueCar, which tracks industry trends provides a platform for auto listings. (The company is also a Consumer Reports partner.)
“Experts are expecting this to drag on to the fall, and as far as where consumers can go for alternatives, there aren’t a whole lot of options,” he says. “Anyone who’s waiting for prices to come down might be waiting for a while.”
Woolard says that prices in used-car listings for May 2021 on TrueCar’s website so far are up 32 percent over the same time last year.
“If you need a car right now, they’re expensive, and unfortunately, all signs point to prices continuing to increase,” Woolard says. “It’s a great time to trade or sell a used vehicle—used vehicles are going up in value, and that doesn’t happen that often.”
So with demand for cars rising as businesses reopen and stimulus checks and tax refunds are deposited into consumers’ bank accounts, the new-car supply is likely to get even tighter over the next few months. That, in turn, will increase demand for used cars.
The market will calm down eventually, but it may take some time. So if you want to buy now, do your research on current pricing and deals, and be open to considering several models to increase your chance of scoring significant savings.
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