The Surprising Surge: What’s Driving Up Used Car Prices?

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So what's really going on with used car prices? Are we in a recession? Are they going up or going down? Was there a bubble? Well, although used car values dropped a little from the inflated prices during the pandemic, according to Cox Automotive on March 7th—one of the largest trackers of auction and retail prices—the wholesale used price went up 4.3% from February to January. That’s one month, right? So it’s not 4.3% per year—that’s a month—the largest increase between two months since 2009.

Right, that’s almost 15 years ago, so used car prices are still going up even after the inflated price and spike. What does that mean for you as a buyer or an owner? Well, if you own a used vehicle—which, guess what, we all do; even if you buy a new car, a month later it’s a used car—your vehicle’s value is high. Whatever you paid for it was probably not a bad investment. It’s not like the old days when you bought a new car and it dropped 50% the day you drove it off the lot; now, the value holds more than it did.

However, what is your risk? Your risk is if you crash your car or if it gets damaged—replacing it will be tough and expensive. So you’ll want to ensure you have good insurance that covers the vehicle’s value, and you’ll want to be very careful with it to avoid it being stolen or totaled.

If you’re a used car buyer, what do you do about the used car values? Well, it’s a tough spot because you could consider a new car right now. Currently, a new car isn’t much more than a two- or three-year-old car. For instance, in 2023, with the 2023 models out, any car from 2020 or newer won’t be much cheaper than a new car. So, buying a new car might be an option. However, the availability of new cars isn’t great, and whether you buy new or used, the monthly payment on a car loan right now is very high.

How do you do the math on a car loan? First, you look at the car’s price. An average new car is around $46,000. But with current interest rates, financing a $46,000 car on a five-year loan—ideally, you wouldn’t want to go longer than five years, though four years is even better—can lead to about a $1,000 monthly payment. While you could buy a used car and maybe save a little—say, you spend $40,000 instead of $46,000—the interest rate on a used car loan will be higher. Additionally, maintenance and repairs will likely cost more, so even if you get a payment of $850 instead of $1,000, it might not save you much in the long run.

If you have a car lease currently, it might be worth considering buying out that lease when it ends. That could be a good source of a used car, as you’ll have a fixed purchase price that may be lower than the expected market value of that leased vehicle.

What about electric vehicles? New EVs aren’t that much cheaper; in fact, they’re slightly more expensive. However, there are significant incentives. Adding up all federal, state, and local incentives, you might save $10,000 to $15,000. For example, there’s a $7,500 federal incentive, some states offer another $2,000–$3,000, and some utility companies add a few thousand more. So, if you’re buying a $50,000 car, those incentives could bring it down to around $40,000. That might be a better deal, but purchasing a vehicle is still challenging right now.

Even older cars are expensive; we’ve seen cars with 100,000 miles and 10 years of age going for $20,000–$22,000. It’s less than a new car, but it’s still not cheap, as that car could still give you a $500 monthly payment for a 100,000-mile vehicle.

Share your thoughts below: What are you seeing in your market? What kind of car do you have? What’s its current value? Are you looking to replace it, or are you planning to keep it longer due to current prices?

The Surprising Surge: What’s Driving Up Used Car Prices?
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