In a post-pandemic era, being cautious is the new norm. The purchase decision of a luxury product in these times can be a tricky one. There is a rise in the demand for used cars. It can be due to people avoiding mass transportation or being careful of the auto costs in a recession.
Consumers are finding a higher used car inventory than ever before. The sales of such online dealers are rapidly growing on the back of high demand. However, plummeting new auto manufacturing and higher demand are driving up prices.
Should you consider buying one?
The used car market in the US has an estimation of 41 million unit sales per annum. The changes in the market are a result of the triggers relating to the pandemic. Experts believe the same will accelerate the further growth of this space.
The biggest strength of the sector is Americans shelling out money for the second highest-priced asset, .i.e. the vehicles. It is a crucial driving force for the sector as well as the economy.
The shortage in the supply chain is driving the prices. As per the Consumer Price Index, the prices of used cars have surged by more than 21 percent from April 2020. Though the production of new cars has been increasing, the automakers are yet to provide a steady flow of new vehicles to the market.
The car market did not face a supply crunch like the other essentials, but the used car market changed from its pre-pandemic scenario.
Experts predict a dip of 36 million in new vehicle sales globally till 2022 vis-a-vis 2019 levels. It is due to the lockdowns, auto factory restart timeline, and declining global consumer confidence. The US projections alone peg the number at 3.5 million new vehicle sales drop per year. However, it is also crucial to note that the pre-pandemic era had a used car market size twice that of the new ones.
Though if you are on the seller side, the current market conditions are the best for you to sell your old car. Some of the aspects that need special attention if you decide to sell your car. It can include the miles driven, conditions of the body, engine, and inside of the car, and documentation.
You can refer to how to add trade-in value to your car as explained by Gettacar.com. It can give you a comprehensive idea about the factors you need to care about during the sale.
Used Car and New Car Market Links
The size of the used car market is more than double the new car market. In absolute figures, 40 million used cars as opposed to 17 million new cars sold in 2019. The stock of the old cars generally come from two sources:
- Customers swapping leased or old cars for new
- Renting companies dropping the old ones and upgrading their fleet.
The pandemic hit this makeshift supply chain by traditional disruptions in the new cars supply chain. The reason was factory lockouts due to a labor shortage and an occasional scanty supply of key parts. It is resulting in pilling losses for the automakers.
So as a trickle-down effect, the used car market is getting affected because of the absence of new cars for swapping.
The government’s ‘Cash for Clunkers’ program post-2008 credit crisis led to the new car sales increase. However, there are no such schemes this time around as the auto industry is gripping with shutdowns, funds crunch, and labor shortages.
Rising Used Car Demand and Absence of New Cars
The buyers who are not in a position to opt for a new SUV, are going for the pre-owned and affordable ones. The sharp rise in the demand for used cars has let dealers put out advertisements and reach out to the existing car owners.
There is an inclination of first-time buyers towards new cars, which can be because of the utility or the low-interest rates. However, the ones who are looking for something more functional and cheaper are opting for used cars.
The recovering new cars supply chain and high demand mean that demand and supply will remain stiff even with low sales figures. Thus, leading to higher prices for a continued period.
So with the change in market dynamics and supply chain, there will be a higher demand for the used cars in the market. If you are looking to get yourself one soon, you should keep the rising prices in mind. It is also difficult to get the vehicle of your choice in such a short-supply market. Given the affordability quotient in play, used cars definitely have to make a spot on your consideration set.