SEARCHING FOR THE ELUSIVE $7K USED CAR

I remember when $7,000 used cars were a thing… six months ago! They were for sale in front yards and used car dealerships everywhere and it seemed they would be around forever! Hey, for $10,000.00 – $15,000 you could drive away in something amazing! People, I never thought I’d say this but they may be gone for good. The average transaction price for a used car was $25,410 in the second quarter of 2021, up from $22,977 in the first quarter and 21% year-over-year, according to data from online automotive resource Edmunds. That figure marks the highest average price over a quarter for a used car that Edmunds has ever tracked. In June of this year the average used car price leaped $7,583. The new average cost of a used car is over 33% higher than a year ago, it’s time to reevaluate our expectations. Read more about THE CAR BUBBLE.

The average cost of a new car in 1990 was about $9,500. This means after the first year’s depreciation (20-30%) and subsequent year’s (16-18% annually) we might buy her used in 1995 for around $2,000.00 – $3,500.00. The average price of a new car in 2020… $37,000. Over the next 5 years that car loses around 60% of its value. If you don’t have a calculator handy that puts the price at around $14,500.00 used. Today we can add about $7,000.00 to that number bringing our estimated cost for the five year old car to $21,500. Expect that number to be higher depending on condition and mileage. Chip shortages, labor problems, and general industry chaos can be held responsible for the blight on our $7,000.00 used cars.

There Is A Bright Side

Quality: New car quality has increased and is still rising, they simply last longer. They’re still kicking like a mule at eleven plus years. This means that a five year old car has a long life ahead of it and the owner knows it. It’s price will reflect its longer life.

Supply and demand: Used cars are practically non existent these days compared to just a year ago. Increased SUV, truck, and crossover sales in recent years has led to less small, inexpensive vehicles on the used market and less means more for private sellers. With less inventory on the market, there is less competition and this is powerful leverage for sellers so if you have an extra, consider selling at a profit.

Not As Bright

Larger more expensive vehicles: The COVID collateral damage? Higher end cars with more options are being produced for solvent buyers, shrinking the affordable used car supply. Since you’re not likely to find many of them for sale, they come at a premium. If you do find an inexpensive used car in great shape, move fast, it won’t be available long!

Are there any cheap used cars out there worth buying?

2016 Subaru Outback

Of course there are, just increasingly harder to find. Best bet is to purchase from family or close friends that can guarantee the car’s history. 150,000 plus miles is fine as long as the car has been properly maintained and loved. Otherwise it’s anyone’s guess how long the car will last. Dealers can’t sell what they don’t have and there are so few of these rare birds available that dealers can’t find them either. The discerning used car dealer has a reputation to protect and must have a reasonable amount of confidence in each used car they sell. Oftentimes cheap is just cheap and that doesn’t meet inventory standards.

The New Standard

What should you expect to pay for a reliable, well maintained used car today? For the features that most of us want with 60-80k miles you can expect to pay on average around $19,000-$23,000 for your 4 to 5 year old used vehicle. Yes, there are exceptions both higher and lower depending on the car and condition specifics but buyer beware, if it’s cheap it’s a heap! Have questions? Call or text (757) 560-4252 and ask for Mike Love, I have answers. Happy hunting folks!

TM Auto Wholesalers, Chesapeake Va

Sources:

Frio, Dan “Cheapest Used Cars” EDMONDS.COM December 10th, 2019 Web. Retrieved from: https://www.edmunds.com/vehicles/cheapest-new-cars/

Edgerton, Jerry “Cars Now Last Longer Than Ever.. Will Yours” CBSNews.com August 7, 2015 Web. Retrieved from: https://www.cbsnews.com/news/cars-now-last-longer-than-ever-will-yours/

Mattone, James “Used Car Prices at Highest Levels in Three Years” media.thinknum.com August, 2019 Web. Retrieved from: Mahttps://media.thinknum.com/articles/used-car-prices-are-at-highest-levels/

IT’S BEEN A WILD RIDE FOLKS, LIKE NOTHING I’VE SEEN IN THIS INDUSTRY

I hesitate to use the phrase “New Normal” as it’s become the new normal to say that now. Instead, let’s take another look at the car bubble facts. In my last article, Should You Buy A New Car Or Fix Yours Up, we discovered that in fact there is a real problem that is affecting new and used car prices. Here’s the current situation and what’s being done to change it for the better.

WILL CAR PRICES FALL? THE GOOD NEWS

It looks like there’s a ray of light at the end of that dark price tunnel after all! Cars.com reported that after a leap in prices, 33.4% since December 2020, the climb has begun to stall. Just 2.2% increase in prices from June 2021 to July and a crawl of 1.3% from July to August. This is an encouraging event and one that signals relief for most if not all car buyers.

An analysis of used prices for individual models shows the same trend, and some vehicles are even seeing median prices decline.

America’s best selling SUV, the Toyota RAV4, saw its median price for used cars at Cars.com dealers increase 7.3% between May and June but only 3.8% from June to August.
An even more telling story is the Ford Explorer. The SUV’s median used price catapulted 12.1% from May to June, then ebbed 0.5% from June to August.
The price plateaus of several popular pickup trucks offer the most dramatic example. The median price of used Ford F-150s jumped 14.3% between May and June, but only 2.8% between June and August.
After a 10.6% increase from May to June, the Chevrolet Silverado 1500’s median used price fell to 0.5% between June and August. The trend is similar for the Ram 1500, whose median used price rose 5.1% between May and June, yet declined 1.8% in the ensuing two months.

A WAYS TO GO BEFORE THE BUBBLE BURSTS

The outlook is better but we’re still at the edge of the woods so to speak. Yes, price increases are slowing but new & used car prices for the most part will remain higher than pre-pandemic numbers for now. It’s not likely we will see those old school prices, “Until full production can be reached, manufacturers will focus on more expensive and more profitable models and trim levels,” according to Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions, a firm that’s been monitoring the microchip shortage. That pesky microchip shortage is still wreaking havoc on almost every manufacturer. According To Automotive News, GM and Ford announced more production cuts in September, while Honda, Toyota and Hyundai had previously avoided major production disruptions but are now experiencing delays. “This will keep the average buyer in the used-car market, which will just continue to prop up prices,” Fiorani said.

In addition, owners with underused cars have sold them to reap the benefits of higher prices and those with aging used cars will soon have to replace them, the demand is still great for used cars. This means that prices may have leveled off, but don’t expect them to fall anytime soon.

THE CAR BUBBLE BOTTOM LINE

Used cars are more reliable today than they’ve ever been in history. Yes the price may have increased but the car’s value after 100’000 miles, practically speaking, is higher than ever. Whether consumers decide to ride out the balloon in their current car or swallow that bitter price pill created from the chips being down, the future looks brighter. Consumers have a much higher trade equity than in 2019, as much as 48% higher. That when teamed up with favorable interest rates, lessens the price blow considerably. You may be surprised at what your current car is worth and what you can expect as a payment on your next one.

Bottom line, it may not be the new normal but things have changed and we’ll need to adjust our expectations accordingly 🙂

Whether or not to move forward with your new car purchase in today’s market. The truth is, the answer is different for everyone depending on your circumstances and the type of car you’re looking for. Have questions? Ask Mike, I’ll be happy to answer your questions and guide you through your decision making process.

Call or text (757) 560-4252 and ask for Mike Love, I have answers.

TM Auto Wholesalers, Chesapeake Va