The COVID pandemic has temporarily upended the economics of owning a car.
Buying a car has always been an exercise in shelling out money — a lot of money — for something that each day loses more of its value. A car is the go-to poster child to depict a depreciating asset.
Until now, that is. A confluence of COVID-related issues has boosted the price of used cars so much that many owners may be able to sell their cars for more than they paid.
According to iSeeCars, the average sale price of a used car increased more than $7,500 in the 12 months through this past June, to a record $30,800, a nearly 33% increase.
The average price for a used Chevy Camaro, Ram Pickup 1500, Lincoln Navigator, GMC Sierra and Audi A5 are up more than 40%. The average sale price of a used electric Nissan LEAF rose 48% in the 12 months through June.
Even smart budget-conscious buyers looking to spend less, not more, on a car are facing steep price jumps. The $11,505 price for a used Hyundai Accent and the $17,057 for a Mazda CX-3 cost 18% more than they did a year earlier.
The supply-demand traffic jam
The unprecedented rise in used-car prices has a few different drivers. A global shortage in semiconductor chips is slowing down the production of new cars, which shifts some buying demand into the used-car market. And while more households wait for new-car supply to improve, they are holding onto their existing cars, which reduces used-car inventory.
Also, the used market was already seeing plenty of demand during the heart of the pandemic, as some households fled cities for suburbia (or beyond) where owning a car was necessary, and other households chose to switch from public transportation to the lower-risk commute in their own car.
A rental-car industry scrambling to build back its fleet now that Americans are traveling again (and with many preferring driving to flying for the same safety reasons) is another contributor to the great used-car mania of 2021.
The $15.6 billion in used car sales in May 2021 was 44% higher than the monthly sales recorded in May 2019, before the pandemic.
Sell now if you can
But these high prices for used cars are not expected to last. As the global chip supply problem eases, manufacturers will be able to ramp up production lines for new cars, which will eventually ease demand for used cars. It may already be starting: The $15.6 billion in used-car sales recorded in May, was actually $2 billion less than the all-time peak of $17.8 billion a month earlier.
That makes the next few months a unique opportunity: Sell your used car, and you could get a lot more for it than you would in “normal” times. If you financed a car in the past few years, you might find you can sell for more than the remaining loan balance. Add in the savings from having one less car to insure and maintain, and you might be staring at a not-small windfall.
Are you really sure you need it?
For households with multiple cars, the challenge is to think through the feasibility of one less car. If you’ve made the move to remote work or predominantly remote work, it’s likely you could figure out how to “get by” on one car.
Even if you’re a single-car household, the great sellers’ market for used cars makes now a worthwhile time to run through need vs. want. Do you really need the car? If you live in an urban area where there’s mass transportation and ride-sharing, and you’re not stuck commuting five times a week anymore, how much could you save by going car-less? For those urban dwellers, be sure to factor in the paid parking you can kiss goodbye.
An added bonus is that once the loan is paid off in full, you will also likely see a nice boost in your credit score, as the unpaid debt is removed from all score calculations. If you’re sniffing around buying a house, getting rid of the car debt prior to applying for a mortgage can only improve your odds of landing a home loan or improving the terms. Households with no car payments can reap huge retirement savings benefits.
And even if a year from now you decide you do in fact prefer having a car, odds are that a better supply of new cars will have caused the used-car market to settle down from today’s nuttiness. In the meantime, you could be able to cash in on an up-is-down anomaly and sell your used car today for a price you never could have dreamed of pre-pandemic
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