As if the pandemic hadn’t made enough of a mess in 2020, we are now, unfortunately, observing its repercussions in the automotive industry as well. The Consumer Price Index released by the U.S.
Labor Department states that used car prices surged by over 7.5 % in the last month itself. This rise is in addition to the 10 % hike that was observed in the month of April thereby bringing the grand total to an absurd 30% overall increase within this year itself. Such a stark increase has never been observed ever since 2008 and we have only the pandemic to blame for it.
Most of us tend to look at used cars in order to save a couple of bucks when in need of a new ride, but it looks like the Covid-19 pandemic has caused used car prices to go completely berserk. Although this is something that we genuinely foresaw, what is surprising is coming to terms with the actual figures that have been brought to light.
Why, oh Why?
One of the biggest reasons why the used car prices have shot up relates to the slowed production of newer cars due to a pandemic-induced bottleneck. Due to the unforeseen effects of the pandemic, the supply chain throughout the globe has been affected rather adversely thereby resulting in a shortage of many raw materials.
The semiconductor and silicon microchip shortage that has been plaguing the consumer electronics market ever since production has resumed post-Covid, has also, unfortunately, made its way to the automobile sector. This lack of availability of microchips has pushed along various new releases and has also put the brakes on many production plants which unsurprisingly dictates longer waiting periods and slower deliveries.
Most of us would have already realized that the lockdowns that were put in place to curb the spread of the Covid-19 virus served to be a catalyst for introspection amongst many individuals which has resulted in a shift in the outlook towards life. Due to the inherent nature of humans being social animals, the act of social distancing and quarantining for extended periods of time hasn’t been too kind towards mass psychological health and people crave an escape.
Much like most other consumer goods, automobiles have also experienced a surge in sales since people have a renewed love towards travel and the outdoors and vehicle ownership is pretty much the first step towards the start of this new journey. The pandemic has unsurprisingly also significantly lowered public patience levels which have resulted in more people scouring the classifieds for well-maintained used cars to avoid awaiting the delivery of a new vehicle.
As many of the readers would know, at the start of the pandemic, most of the car rental companies had suffered huge losses and had disposed off various fleets of vehicles to cut losses, but with the now increasing interest in setting foot outside, it can be observed that those same companies aren’t able to match the demand. In a staggering revelation, rental car prices have risen by over 12% in the last month alone with hotel prices and airfare also taking an astronomical trip. Although such high demand was predicted when the restrictions were eased up, even analysts are shocked at the actual figures.
Julia Coronado, founder of the research firm MacroPolicy Perspectives, believes that the entire market is currently heading into its peak heat but it is tough to gauge as to when will the fade eventually begin. Much like many other economists, Ms. Coronado also believes that the overall inflation percentage would settle down to the Federal Reserve’s 2 % average goal. We are still keeping our fingers crossed as predictions can often soon enough turn false.
How much did you say that was?
One other strange phenomenon that has mostly been brought to light in the region of Denver is the prices of slightly used vehicles trumping their original MSRP. Yep, you read that right, the patience levels have started to drop so low that consumers are ready to pay a premium to buy regular used vehicles over their original sticker price just to circumvent the wait times.
Vehicles such as the Kia Telluride, GMC Sierra 1500, Toyota RAV4, Mercedes G-Wagen, and Toyota Tacoma are one of the most popular used vehicles right now and are bringing in a premium of up to 10% over their original MSRP even though the said examples are 6-12 months old with a couple of thousand miles on the clock.
On average, it is calculated that many Denver residents are paying approximately 2.6% over the original sticker price of the said used vehicles with the most absurd premium being to the tune of 11.1% for a used GMC Sierra 1500. In the pre-Covid era, a vehicle with a similar run-in would cost about 17% cheaper than its MSRP but when we compare it to the current statistics.
It is visible that this gap narrowed down to only 3.1% just a short while ago and has now completely hit the curb. If Mr. Tim Jackson, CEO and President of the Colorado Automobile Dealers Association is to be believed, these absurd prices currently can only be observed for a handful of supremely in-demand vehicles but there is a chance that if the microchip supply doesn’t stabilize soon, many other models could fall prey as well.
The rebound in leisure travel isn’t the sole reason for such high demand as millions of people are also being called back to physically report for their jobs thus increasing demand even more. Reports by J.D. Power suggests that Americans bought over 7 million vehicles in just the first half of 2021 and the trend shows no signs of bulging towards a decline anytime soon.
We would have never been able to imagine that we would have such a disproportionate increase in used car prices, especially to the point where some examples would surpass their own MSRPs. Looking at how the trend is shaping up, we would advise all our readers to wait out this slightly inconvenient period as we do believe that the prices are doomed to reach a plateau and would stabilize soon enough.
Infuriatingly humble organizer. Entrepreneur. Zombie guru. Professional creator. Future teen idol.