I touched on it in the newsier post about used-car prices down below, but in normal times, scribes like us sometimes advise our family and friends who are car shopping to buy used, because a lightly used car can be in like-new condition and cost significantly less. And someone else has taken the initial huge depreciation hit.
These are not normal times.
If someone came to me right now and said they wanted to buy a car, I’d advise them to wait. Let inventories recover from the supply tightness caused by the semiconductor chip shortage. And if they were unable or unwilling to wait, I’d tell them to consider buying new. Especially, of course, if they wanted any of the 16 models that are averaging higher prices used than new that we discussed earlier today.
*To be clear, we’re talking mostly about mainstream metal used for daily driving. This discussion doesn’t apply to classic and/or collector’s cars, used cars more than a few years old, or late-model cars that are desired by enthusiasts (especially hard to fine ones). Those types of vehicles aren’t part of this discussion for obvious reasons.
And if my hypothetical acquaintance insisted on buying used, I’d tell them they’re crazy (unless, of course, they couldn’t wait to get a car). Even if the car they’re targeting is generally cheaper used.
It’s not just about the cost of new versus used. The constricted supply of new cars is driving the price of used cars up, even if that price doesn’t cross the threshold of what a new car stickers for. Simply put, used cars cost more than they normally would due to temporary market conditions.
Analysts say that the market should return to normal within the next year or so, as the pandemic (hopefully) continues to recede, the chip shortage eases, and other production problems get solved. The number of new-car sales could get back to 16 or 17 million units per year again — that’s where it was not just before COVID, but also way back in the day before the Great Recession hits.
One doesn’t need to be an economist to understand that if that forecast holds true, there will be plenty of new cars that soon become used cars. Thus increasing supply. Not only that, but those who have older cars might finally buy new ones, further increasing supply. Yes, it’s true that older used cars can’t be directly compared to ones that are under three or five years old — the older ones will have more wear, higher mileages, they’ll be more outdated in terms of features, they’ll be out of factory warranty, they will be too old to be certified pre-owned, yadda yadda yadda — but since not every used-car buyer is looking for something of recent vintage, the increased supply could still drag down prices across the board.
Look, we all love new cars around here. Many of us also love slightly used cars. But right now seems like a terrible time to buy.
The good news is that the market should improve, from the buyer’s perspective, soon enough. Patience, in this case, is likely to be rewarded.