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Price increases are slowing down, but prices are still very high
By Benjamin Preston
The used-car price spike has cooled off a bit since its precipitous climb during 2021, but prices are still more than 22 percent higher than last year, according to the May 2022 Consumer Price Index Report. Quite simply, new-car shortages continue to put pressure on the used market. Nick Woolard, an analyst at TrueCar, a Consumer Reports partner that tracks industry trends and provides a platform for auto listings, says that even though interest rates and fuel prices are up and used-car prices are still elevated, a glimmer of hope has emerged.
“We are seeing more vehicles being marked down than for the same period last year,” he says, noting that much of that comes from used cars, in particular less fuel-efficient models.
According to publicly available CPI numbers, current used-car prices are still more than 48 percent higher than they were in the first quarter of 2020, before the pandemic caused widespread closures and market disruptions. The price increase has helped drive an overall rise in the nation’s inflation rate.
Pat Ryan, CEO of CoPilot, an app that helps car buyers keep track of prices and find the best deals, says that according to his data, some brands and types of vehicles are more expensive than others. At the low end are Subarus, which he says are selling for about $6,700 above what would have been considered normal a couple of years ago. Trucks and SUVs are more than $10,000 above normal, on average, and on the high end, used Teslas are selling for almost $20,000 more than they usually would.
The result, Ryan says, is that older models tend to be more affordable right now.
“If you can afford to buy a $20,000 used car, you can still get one, it will just be an older car for the same money,” he says. “If you are considering buying a car that is one to three years old, prices are still way too high.”
Sam Abuelsamid, an analyst with Guidehouse Insights, another auto industry analysis firm, surmises that inflation, higher interest rates on auto loans, and high dealer markups are most likely slowing down demand.
“Also, people have probably become accustomed to the shortages and simply aren’t looking unless they really need a vehicle right away,” he says.
For those who do need a car now, the high prices can be daunting. But Lauren Lauren Donaldson, senior director of accounts at PureCars, a consultancy that advises dealerships on marketing strategies, says that those who have a car to sell possess a built-in advantage.
“The silver lining for consumers is that even though prices are higher, your trade-in will never be worth more than it is today, and that may put you in a better position to purchase a newer car,” Donaldson says.
In good times and bad, Consumer Reports members can search our Used Car Marketplace for vehicles for sale in their area, sorting by the factors that matter most. The listings include CR reliability and owner satisfaction ratings, and there’s a free Carfax report for most of the vehicles. Members can also access ratings and information on used vehicles going as far back as 20 years.
The relatively high price of used cars was pushing many buyers toward new cars a year or so ago. But with the global semiconductor shortage continuing to drag on, many automakers still have fewer new cars than consumers want to buy.
Now even rental car companies—many of which sold off vehicles during the pandemic when car rentals and travel in general plummeted—are either buying used cars or keeping the ones they have for longer than usual just to bring their fleets back in line with rising demand.
The widely watched Consumer Price Index was up 8.3 percent in May compared with a year ago, the government said in a release—the highest inflation rate in more than a decade. That follows an average inflation rate of just 1.4 percent in 2020, when the COVID-19 pandemic kept many people at home.
Chip Shortage
The semiconductor shortage has put a pinch on the supply of microchip processors automakers need for new cars. The chips control everything on a car from infotainment screens to window motors. It’s the main culprit behind the current tightness in the new- and used-car markets, multiple experts say, and it has also affected the availability of other consumer products.
And it doesn’t appear to be getting better anytime soon. Last month, Pat Gelsinger, CEO of Intel, one of the larger chip manufacturers, downgraded his prediction for when semiconductor stocks would bounce back to normal. Now, he says, it might stretch into 2024.
“Experts are expecting this to drag on, and as far as where consumers can go for alternatives, there aren’t a whole lot of options,” Woolard says.
What Can You Do?
Although used-car prices have risen faster than new-car prices, experts say the spike is a double-edged sword. Dealers are trying to snap up as many used cars as they can to satisfy customer demand, and that means you can get top dollar if you’re looking to sell or trade in.
Donaldson says that dealers are most keen on finding cars under 2 years old and that the 3- to 5-year range is the next most sought-after.
CR experts say that regardless of prices, the bottom line is that you should make a deal when the time is right for you. If it’s now, you can leverage your trade-in to get the best deal possible. If you decide to wait, know that future pricing is hard to predict, especially when global supply chain problems plague automakers. The market will calm down eventually, but it may take some time. So if you want to buy now, do your research on current pricing and deals, and be open to considering several models to increase your chance of scoring significant savings.
“With cars still in short supply and prices high, it’s still not a great time to buy a car,” says Gabe Shenhar, associate director of CR’s auto testing program. “If you need a car now, focus on two or three fuel-efficient models that fit your budget, and search a wide range of websites like TrueCar, CarGurus, and Autotrader to see what’s available. Keep in m
ind that you probably won’t be able to negotiate much on price in this market.”
On the upside, says Ryan, used car prices may begin to come down in the not-too-distant future.
“Prices are already starting to cool off, and that will accelerate as interest rates go up,” he says. “People are getting tired of paying 98 percent of the new car price for a used car.”
More from Consumer Reports:
Top pick tires for 2016
Best used cars for $25,000 and less
7 best mattresses for couples
Consumer Reports is an independent, nonprofit organization that works side by side with consumers to create a fairer, safer, and healthier world. CR does not endorse products or services, and does not accept advertising. Copyright © 2022, Consumer Reports, Inc.
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