2021 Auto News USA automobiles

New or used? Either way, price hikes squeeze US auto buyers


FENTON TOWNSHIP, Mich. (AP) — The viral pandemic has triggered a cascade of price hikes throughout America’s auto industry — a surge that has made both new and used vehicles unaffordable for many.

Prices of new vehicles far outpaced overall consumer inflation over the past year. In response, many buyers who were priced out of that market turned to used vehicles. Yet their demand proved so potent that used-vehicle prices soared even more than new ones did.

The price of an average new vehicle jumped 6% between January of last year, before the coronavirus erupted in the United States, and December to a record $40,578, according to data from Edmunds.com.

Yet that increase was nothing next to what happened in the used market. The average price of a used vehicle surged nearly 14% — roughly 10 times the rate of inflation — to over $23,000. It was among the fastest such increases in decades, said Ivan Drury, a senior manager of insights for Edmunds.com.

The main reason for the exploding prices is a simple one of economics: Too few vehicles available for sale during the pandemic and too many buyers. The price hikes come at a terrible time for buyers, many of whom are struggling financially or looking for vehicles to avoid public transit or ride hailing because the virus. And dealers and analysts say the elevated prices could endure or rise even further for months or years, with new vehicle inventories tight and fewer trade-ins coming onto dealers’ lots.

The supply shortage arose last spring after the coronavirus hit hard. Automakers had to shut down North American factories to try to stop the virus’ spread. The factory shutdowns reduced the industry’s sales of new vehicles and resulted in fewer trade-ins. So when buyer demand picked up late in the year, fewer used vehicles were available.

Compounding the shortage, rental car companies and other fleet buyers — normally a major source of used vehicles for dealers — have been selling fewer now. With travel down and fewer people renting cars, the fleet buyers aren’t acquiring as many new vehicles, and so they aren’t off-loading as many older ones.

“It’s like a weird perpetual motion machine right now with pricing,” said Jeff Goldberg, general manager of Goldie’s Motors, a used vehicle dealership in Phoenix.

Charlie Chesbrough, senior economist for Cox Automotive, predicted a tight used-vehicle market with high prices for several more years.

“There are millions fewer used vehicles that are going to be available starting next year, 2022 and 2023,” he said.

The resulting price spike essentially has created three classes of auto buyers: Those affluent enough to afford new vehicles. People who can afford late-model used cars. And buyers with low incomes or poor credit who are stuck with older, less reliable vehicles.

The industry is still trying to recover from the pandemic’s devastation last spring. The resulting factory closures shrank output by 3.3 million vehicles. Sales temporarily dried up, and so did the influx of trade-ins.

Once the factories restored production in May, demand turned hot. Problem was, the supply of vehicles fell well short of demand, especially for pickup trucks and SUVs. Prices surged. And new-vehicle purchases for the year tumbled — by nearly 2.5 million to 14.6 million.

When Larry Parsons of Hartland Township, Michigan, went to buy a pickup truck in August, the question of whether to buy new or used was unfortunately an easy one.

“We did look at new trucks, but the price is excessive,” he said. “Some trucks cost upwards of $70,000. It’s to the point where it’s ridiculous.”

Instead, Parsons settled on a 2019 Ford F-150 with 29,000 miles on it. The truck, priced at $52,000 when new, cost $37,000. He also bought an 84-month warranty to cover the vehicle while he is still making loan payments.

To be sure, vehicle prices had been rising well before the pandemic struck, with many buyers choosing loaded-out trucks or SUVs and taking on loans of six years or more to keep their payments low. Even so, used prices had remained relatively low, with an ample supply of 3 million-plus vehicles returning to the market each year from leases.

Then the virus hit. With it came government stimulus checks, which many buyers who used as down payments. Because they weren’t spending on restaurants or vacations, some people spent even more on vehicles than they otherwise would have.