Budget breakers
New or used, pandemic pushes vehicle prices
FENTON TOWNSHIP, Mich. — 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 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.
In recent years, automakers had set the stage for higher prices by scrubbing many lower-priced new vehicles that had only thin profit margins. Starting five years ago, Ford, GM and Fiat Chrysler (now Stellantis) stopped selling many sedans and hatchbacks in the United States.
Likewise, Honda and Toyota have canceled U.S. sales of lower-priced subcompacts. Their SUV replacements have higher sticker prices.
“The industry has been abandoning that $30,000and-below price point,” Chesbrough said. “Essentially, they’ve been forgoing that territory to the used car market.”