$ 29,000 for an average used car? Potential buyers are aghast
By TOM KRISHER | The Associated Press
DETROIT – A few months ago, a woman visited Jeff Schrier’s used car fleet in Omaha, Nebraska. She was on a tight budget, she said, and was desperate for a vehicle to get to work.
He was shown three cars priced at his limit, around $ 7,500. Schrier said the woman was stunned.
“Is that what I get for $ 7,500?” ‘”, he recalls, saying. The vehicles had a lot more age or mileage than she expected to replace a car that had been destroyed in an accident.
The woman eventually opted for a 2013 Toyota Scion with 160,000 miles. Schrier is not sure he made a profit on the deal. “We just helped her,” he said.
As used vehicle prices exceed any seemingly rational level, this is the kind of scenario playing out in many car dealerships across the country. Prices have climbed so high, so fast, that buyers are increasingly excluded from the market.
Consider the average price of a used vehicle in the United States in November, according to Edmunds.com, was $ 29,011, up 39% from 12 months earlier. And for the first time we can remember it, more than half of American households have an income below what is considered necessary to purchase a mid-priced used vehicle.
The days when just about anyone with a steady income could walk around a parking lot and grab a reliable late model car or buy their child’s first vehicle for a few thousand dollars are all but gone.
“I’ve never seen anything close to this – it’s crazy,” said Schrier, who has been selling cars for 35 years. “It’s pretty frustrating for so many people right now.”
When the government announced that consumer inflation had climbed 6.8% in the 12 months ending in November – the biggest jump in almost 40 years – the biggest factor aside energy, was used vehicles. And as the rate of increase slows, most experts say inflated vehicle prices are unlikely to ease for the foreseeable future.
The blame can be attributed directly to the outbreak of the pandemic in March of last year. Auto factories have suspended production in an attempt to slow the spread of the virus. As new vehicle sales declined, fewer people traded in used cars and trucks. At the same time, demand for laptops and monitors from people trapped at home has led semiconductor manufacturers to shift production from automobiles, which rely on these chips, to large electronics. public.
When a faster-than-expected economic rebound boosted demand for vehicles, auto factories attempted to restore full production. But the chipmakers couldn’t react quickly enough. And car rental companies and other fleet buyers, unable to acquire new vehicles, have stopped offloading old ones, exacerbating the shortage of used vehicles.
As bleak as the market for used car buyers is, the shortage of computer chips has also pushed up the prices of new vehicles. The average new vehicle, according to Edmunds.com, is getting closer to $ 46,000.
Even so, the prices of used cars are expected to approach those of new cars. Since the start of the pandemic, used vehicle prices have jumped 42%, more than double the increase for new vehicles. Last month, the average price of used vehicles was 63% of the average cost of new vehicles. Before the pandemic, it was 54%.
At this point, Schrier needs to tell low-income buyers that he has very few used vehicles to sell.
“What used to be a $ 5,000 car,” he said, “is now $ 8,000. What was previously $ 8,000 is now $ 11,000 or $ 12,000.
Including taxes, fees, a 10% down payment, and an interest rate of around 7.5%, the average used vehicle now costs $ 520 per month, even when financed on average over almost $ 50 per month. six years, Edmunds calculated.
To make that payment and afford other necessities such as shelter, food, and utilities, a household would need to earn about $ 60,000 a year, or $ 75,000 before taxes, said Kimberly Palmer, personal finance specialist. at NerdWallet. In 2020, the median household income before taxes in the United States was $ 67,521, according to the Census Bureau.
“The average person,” said Palmer, “can’t afford the average used car right now.”
Ivan Drury, a senior executive at Edmunds, said that while he does not track used vehicle prices against household income, he believes November marked a record “in the worst possible way for affordability. “.
Monthly payments for the average used vehicle, he noted, were $ 413 two years ago, $ 382 five years ago and $ 365 ten years ago. The November average payment of $ 500 and up for a used vehicle, Drury said, is about the average that was needed five years ago for a shiny new vehicle.
“People are going to have to make tough decisions, maybe cut back in other areas,” Palmer said. “It means it’s stressful for a lot of families. “
Used vehicle prices are so high that Karl Hogan of Canonsburg, Pa., Near Pittsburgh, was able to quickly sell his 2007 Toyota Tacoma small pickup truck last month, with more than 170,000 miles. Even with the age and mileage of the vehicle, an Ohio man shelled out over $ 6,500 for it.
Hogan did not have to budge from the asking price. When some potential buyers offered him less money, he said, “I have 12 other guys behind you. “
A week before the sale, when he bought his new Tacoma, Hogan was on the other side of the equation. The dealership hasn’t budged from its $ 38,000 price tag. “If I didn’t take it,” Hogan said, “there were three people waiting. I couldn’t get out of it, but wanted a new truck.
David Paris, a senior executive at JD Power, noted that used vehicle prices are directly related to the cost of new vehicles. Although some automakers report that the supply of computer chips is gradually improving, the prices paid by dealers at used vehicle auctions continued to rise until November, Paris said.
“We don’t see any drop in prices, which is extremely rare at this time of year,” he said.
New vehicle dealers have around 1 million vehicles available nationwide – barely a third of the normal supply, Paris said. And the vast majority have already been sold.
Given pent-up consumer demand, prices for new vehicles are expected to remain historically high until supply drops to around 2 million or 2.5 million and automakers resume discounts, which could take up to ‘in 2023. Once new vehicle prices ease, the pressure on used vehicle prices would eventually follow.
Yet even after that, vehicle availability will be restricted as traditional sources of used vehicles – cars returned by leases and trades or sold by rental companies – have essentially dried up.
During the past decade, cars returned from two- and three-year leases have been a primary source of near-new used vehicles. But that was back when more than a third of new vehicle sales in the United States were rentals, a figure that has now fallen to 22%, Edmunds’ Drury said. Because there aren’t many new cars, people with expiring leases often buy these cars after their lease ends.
Rental companies, another key source of the latest generation used cars, cannot buy new ones now and keep the ones they own. Some rental companies even buy used vehicles. Taking all of these factors into account, Paris expects the used car shortage to worsen by 2024.
Among the few consumers who could benefit from it are those who want to sell a used car and do not necessarily need to replace it. The average trade-in value in October, Paris said, was $ 9,000, double what it was a year earlier.
But for people who have no vehicles to trade in and only have modest incomes, options are scarce. Palmer of Nerdwallet said low-income people may simply have to pay for repairs to keep a current vehicle running for as long as possible. Even this option, however, can become prohibitively expensive.
JD Power’s Paris says if they can afford it, buyers should consider a new vehicle. He recently managed to get a couple thousand dollars off the sticker price on a new Ram pickup, although he had to travel from the Washington, DC area to Philadelphia to reach a willing dealer he had. localized by searching internet forums.
“If you look closely enough and are willing to wait and travel,” he said, “you can find deals at most brands.”