Used car prices expected to keep soaring in 2022
If Florida motorists thought buying a new car is a tough act, their quest for a late-model used car alternative is likely to be just as challenging well into next year.
Tight supplies, higher prices and limited selections are likely to continue to pester the market, dealers and economists say. That means buyers will be spending more time trolling for cars online, visiting dealer lots with limited selections and making compromises on their wish lists.
Used car prices, according to the U.S. Bureau of Labor Statistics’ Consumer Price Index, are up 39.8% since the COVID-19 pandemic started battering the economy in March 2020.
Broward County residents Marie and John Leo, and son Malik, have felt the impact. They’ve been on a mission to upgrade the cars in their family since the summer. John ordered a new Acura from the factory in July. It was supposed to come in September but he’s still waiting.
Malik, who is headed for graduate school, wants to upgrade his 2003 car to a newer used model. And he wants to make a deal before he leaves.
The Leos were touring an AutoNation Toyota dealership in Weston recently. While there was an ample number of used cars from which to choose, the right car didn’t present itself.
“We’re in November,” said Marie Leo. “We’re still looking.”
Malik, she said, “is looking for something fuel efficient. He’s on a budget. He still wants something reliable, affordable and economical.”
How’d we get here?
Sean Snaith, director of the Institute for Economic Forecasting at the University of Central Florida, points to repeated business shutdowns designed to curb the COVID19 pandemic, and a relentless surge in consumer demand that followed when local, state and national economies reopened.
Aided by federal stimulus checks, a flood of money triggered consumer buying that “ran headlong into the supply chain,” he said. A number of industries including automotive and housing have been impacted by a ripple effect of too many buyers pursuing too few goods.
In the car industry, that has meant the absence of semiconductor chips, which are electric circuits with multiple components such as transistors and wiring.
“We’re still playing catchup with that now,” Snaith said. Moreover, there are continuing logistical problems of moving
key components through clogged U.S. seaports and over the roads to the carmakers that need them. Chips aren’t the only materials in short supply. Foam, leather and rubber are also scarce, said one South Florida car dealer.
“You’ve got the shortages of new cars and there’s just the follow-on effects in the used car market,” Snaith said. “People can’t get new cars; they’re not trading in the old ones. The usual sources for the used car market are drying up.”
But Fort Lauderdale-based AutoNation, the largest car retailer in the U.S, says it has not experienced serious shortages in used cars and customers are finding what they need.
“They’re getting what they want,” said AutoNation executive vice president Marc Cannon. “We’re actively working on selection and they’re coming in and finding what they want.”
AutoNation enjoys an advantage over other dealers in that the company ships cars from one state to another to fill customer orders, giving consumers access to a broader national inventory.
He said customers are willing to pay for what they want, despite the price increases. Interest rates for financing a car are low, he said, pointing to lender offers he found that range from 2.9% to 4%, depending on credit ratings and type of car.
“I think people are willing to pay for the selection they need. I think that’s fair,” Cannon
added. “If you need a vehicle and you can’t get a new one, you have to change up your mindset.”
Cannon said customer visits to the company’s website have increased substantially, and that buyers are arriving at company dealerships prepared to claim their cars — perhaps before someone else does.
“Digital shopping is at an all-time high,” he said. “They’re figuring out what they want. And then they’re going into the dealership. We’re not seeing people going from dealership to dealership.”
It’s common for used car salespeople to push a sale by saying someone else is going to snap up your dream car, but right now, it might actually be true.
“If you need something right now, you’ve got to take what’s available,” said David Menten, president of Sawgrass Ford in Sunrise.
The market is not lacking for buyers.
“People come in and if they see the car they want, they take it home right then and there, Menten said. “It’s really pretty amazing.”
He advises buyers though, to stay clear of deals that carry “reconditioning” charges that
can range up to $800 to $1,000.
Now is the time to trade
Used cars are commanding sizable amounts at auctions where dealers are paying
premium prices to buy them. In turn, used car owners are getting substantial payouts from dealers.
“If you have a third family car you’re not using, now is a great time to get rid of it,” Menten said. “People are getting more for their vehicle than they paid.”
At auction, cars are changing hands at prices that are off the charts, said Jonathan Chariff, CEO of South Motors Automotive Group in Miami. The company operates 10 dealerships in Miami-Dade and Broward counties.
“Cars at the auction are at an all-time high and dealers are using those numbers when putting in for a trade, so that the consumer can get the highest and best value for the car,” he said.
Cars are retailed “at what the market will bear and what the bank will be able to finance it for,” he added. “They work hand in hand.”
Retail sales prices vary by dealer.
“Each decides what they require to make or earn on the vehicle,” Chariff said.
“They take into account the cost of the car, including all the reconditioning, and they make a business decision,” he said. “There is no standard rule. But there is technology today that will tell a dealer what they will pay for the car, based on availability of the car on the market, and what they are selling for.”