At times, it can be difficult to figure out how the used car market works. Sometimes, you feel like you’re basically stealing because the price of a really nice pre-owned car is so low. Other times, you feel like the cost is equal to a new car and wonder what the point of shopping used was. The used car market is an ever-shifting beast that can be challenging to predict. It can also be an indicator of the economy itself, which is why economists and policymakers often keep a close eye on it. But if you play your cards right, the used car market can be your friend.
When you go to your local used Ford dealer, wondering what the prices will be on an older F-150, you might be interested to know that a lot of thought and analysis goes into establishing just what those prices are. Outside factors can radically alter the market, making prices skyrocket or deflate. And it’s not hard to think of a recent outside factor: covid.
Wait. Why Would a Disease Affect Car Prices?
Last you checked, covid can’t infect cars, right? Why does the pandemic have any effect on the used car market? It’s a fair question. You’re certainly not dumb for asking it, as it’s not intuitive. Here’s the thing: when covid shut down factories across the world in 2020, this caused a massive backlog. Then, when the world opened up again in 2021, demand skyrocketed, and companies in many industries just did not have the supply to meet the demand since they had been shut down for a while.
Cars were one of the biggest examples of this. When life restarted, people needed cars more than they did when they had to stay inside. All of a sudden, people were traveling again or commuting to work. Time for a new ride! But the supply was not yet there to meet the demand. To make matters worse, a computer chip shortage appeared due to occasional shutdowns in 2021 and even 2022.
This chip shortage hit Ford particularly hard. Ford was rushing to manufacture new vehicles to meet demand, but the manufacturer had to rely on companies that make computer chips, and many of those companies were struggling to get back on their feet. At one point, Ford had tens of thousands of almost-complete pickup trucks parked outside its factories waiting for chips before they could be shipped to dealers.
Now, you’re seeing the issue, I’m sure. Thanks to this supply chain problem, used cars all of a sudden looked really good to consumers tired of waiting for new models to come back in stock. While the price of a car depreciates quickly in normal times, with supply chain issues, the price of used vehicles started climbing. In 2021 and 2022, used car prices were not all that lower than new cars. Of course, this led to another issue: it meant that new car prices could be hiked even higher due to demand.
Is the Market Realigning?
The short answer is yes. The longer answer is yes, but it’s taking some time. Used car prices are lower than they were in 2021 and 2022, making them once again a smart and economical choice. Thanks to modern cars, SUVs, and trucks being better made, vehicles tend to last longer and come with far better tech than they did a couple decades ago. If you buy a used car, it often doesn’t feel too used, especially if it’s Certified Pre-Owned (CPO). A used car purchase can be a smart move for you and your family. Thanks to inflation, we all have to tighten our belts a bit, and opting for a used car over a new car can help.
That’s not to say that used car prices have gone back to their pre-covid levels. The prices are still elevated compared to 2019, so you might have some sticker shock if you haven’t looked at used cars in a few years. But new car prices haven’t gone back down to their pre-covid levels, either, which means used cars still end up being a solid option.
Consumers are probably going to smile a bit more at the used car market over the next year because the computer chip supply chain is stabilizing. We are already seeing prices drop a little, thanks to market stabilization. In the second half of 2022, used car prices substantially declined. They’ve risen a little again in 2023, but they’re still well below the initial post-covid height.
As manufacturers get back on their feet, the supply of new cars will increase, but perhaps not as much as prior to covid. Some economists believe manufacturers may attempt to produce a little less as they’ve been enjoying the high rates new vehicles now go for. They have little reason to ramp up production if a smaller supply leads to larger profits. Only time will tell if this strategy pays off, but it’s a reminder that even when used cars cost more than normal, a used vehicle is still worth considering.
What’s the Main Benefit of the Used Car Market?
Looking at the landscape now, the attraction of the used car market seems obvious enough. But if the supply of new vehicles increases, should the used car market still be something to consider when it’s time for you to get a new ride?
I’d answer that with a yes. A used car from a few years ago is still going to have great safety features, solid infotainment systems, and, if it’s Certified Pre-Owned, low mileage. In fact, if you buy CPO from a dealership, you’re probably getting a fantastic ride. To be sold as CPO, a vehicle has to be closely inspected and meet certain standards depending on the make and model.
While each year’s model brings advances, I can tell you a car that’s a few years old can still impress. Up until a few months ago, I drove a Ford from 2018, and it was probably my favorite car. I loved the exterior design and the interior infotainment. As the years went on, I never felt like I was driving something old or outdated. The fact is that cars, trucks, and SUVs are so advanced these days that even models almost a decade old can thrill and impress.
Manufacturers are also a bit more fickle these days, sometimes discontinuing models at the drop of a hat. The sedan market has gone through a bit of this lately. If you’re someone who enjoys a sedan (I’m raising my hand here), then the used car market might look even better. You’ll have more sedan options than if you stick with only new vehicles.
Use a Dealership
We’ve all heard the cliches about dealerships being untrustworthy, but from my viewpoint, if you’re going for a used car, you should go to a dealership. For one, it’s far safer than meeting an anonymous person from the internet. You can’t trust that they won’t scam you, that their car is actually in the condition they claim it is, or even that they are a safe person to be around.
For another, a dealership wants to have your business going forward and will therefore be interested in crafting a relationship with you that will last. They have little incentive to give you a hard time. Lastly, a dealership will ensure every used vehicle it sells is safe. A dealership has a lot more to lose if a car turns out to be unsafe than an individual seller trying to make a few bucks.
As used car prices start to level out, and as new cars stay costly and in demand, you will want to consider taking a look at a market that you might have been ignoring in the past. The used car market is a valuable one to have access to, and the vehicles in that market are far higher quality than they used to be. In uncertain times, having more options is always useful. You’d be silly to ignore older models that are still performing at a high level.