Hot market for used cars sends prices to "bizarre" levels
The reopening U.S. economy and lingering pandemic shortages are driving used cars to their highest prices in years.
The rise has made some vehicles once coveted by consumers for their good value markedly less affordable. For instance, a 2017 Nissan Maxima with nearly 125,000 miles at the Dream Auto Group dealership in Woodlands,Texas, is listed for over $20,500. The dealership also has a pre-owned Dodge Ram pickup truck with 61,000 miles for just over $31,000.
"Rising used car prices are a trend that we noticed last summer, and it has really intensified in the past few weeks," said Jessica Caldwell, executive director of insights at car market tracker Edmunds. "You hear numbers that, honestly, I wouldn't pay [$20,000] for a Maxima, especially with that many miles on it. We are seeing bizarre things."
A salesman at the Dream Auto dealership confirmed the used Maxima's price and mileage. He said availability is a big issue, but not the only one. "Prices of used cars are rising," said the salesman, who declined to give his name. "There are a lot of factors that go into it."
Across the U.S., used car prices in April rose to an average of nearly $25,500, according to J.D. Power. That's the highest price ever recorded by the research firm, which began tracking used vehicle sales in the early 1980s. That price is up $3,650 — nearly 17% — since the beginning of 2021.
Shifts in consumer behavior
The Labor Department on Wednesday reported that U.S. consumer prices last month rose at their fastest pace since 2008. Overall, prices were up 4.2% from a year ago. Fully a third of that historically large jump came from the sharp increase in used car prices, which surged 10% in April alone. The Labor Department said that was the largest one-month jump in used car prices since it began tracking the data in 1953.
"The pandemic has caused sudden shifts in consumer behavior that is translating into inflation as businesses struggle to catch up with changing demand," Bill Adams, a senior economist at PNC Financial Services Group, wrote in a note to clients.
The used car market is a prime example of that trend, Adams added, with commuters still leery of public transport due to COVID-19 fears and people who fled cities during the pandemic now needing cars to get around. The federal government's multiple stimulus payments during the crisis also has stoked demand for cars, putting money into consumers' pockets while interest rates remain near historic lows.
"Stimulus checks funded down payments for many vehicle buyers, and the Fed has kept interest rates extremely low, making car loans cheap," Adams wrote.
The main factor pushing up used car prices in recent weeks is scarcity, according to Edmunds' Caldwell, who said nearly all of the regular sources of used cars have been disrupted by the pandemic. Fewer new car sales in the past year means fewer trade-ins. People are extending their leases. Rental car companies, normally a reliable source of used cars, are instead buying used cars themselves in order to rebuild their fleets that were sold off last year as business travel and tourism came to a halt.
On top of all that, a microchip shortage has slowed the production of new cars, sending more would-be buyers to the used car market.
Caldwell thinks the current lack of supply could continue. "Prices aren't going to normalize until late 2021 or next year," she predicted. "It's going to lead to frustration, and it is going to get harder over time because the supply is going to get thinner."
As a result, even cars in the 100,000 mile club are now hot commodities. Used car website Carvana lists one 2010 Toyota Highlander with more than 96,000 miles — as well as a scratch on its side, a dated sound system and some rust — for a hefty $15,600.
TrueCar, a website that lists used cars from dealers across the country and evaluates their sales price, currently shows 108,000 cars for sale with more than 100,000 miles. About a third of those are rated by the website as overpriced, including a 2014 Ford F-150 pickup that has had five previous owners — and has been involved in an accident. The truck, which has nearly 140,000 miles, is listed at $39,999, which TrueCar says is about $1,150 above "average list price."
Joe Carollo, a salesman at Beaman Toyota in Nashville, Tennessee, recently spent part of a day searching his lot for a 2018 Camry Hybrid listed on Beaman's website for just under $27,000. The car has over 313,000 miles on it, according to the website. Carollo thinks that might be a typo, but he's not sure.
"It could already be gone," Carollo said of the Camry after his search of the lot produced nothing. "People come in and know what they want. Some used cars are selling at a premium."
Carollo's manager, Billy Carmical, later confirmed they had located the car and reported that the actual mileage is 31,364. Will it sell? "Everything thing in this market is going fast," Carmical said.
