Shortages driving up prices of used cars
Dealers see low inventory while buyers see higher cost
Car owners in Connecticut and around the country may now have something more valuable sitting in their driveway, and those shopping for a new ride may get a feeling of sticker shock, as the sale prices of used cars are considerably higher than they were at this point a year ago. Shortages in the automotive industry has resulted in higher demand for used cars and a dearth of inventory, leaving dealers scramblingto stock enough cars to keep consumers coming into showrooms. That, in turn, has driven up sales prices of used cars, in some cases as much as 30 percent.
“We’re trying every avenue we can to find used cars,” said Mike Lynch, president of Lynch Toyota in Manchester. “All new car dealers are trying to purchase new cars and that’s driving up the price. Our used car sales are up by 5 to 10 percent and that’s largely because there is a lack of new car inventory; if somebody needs a car right away, they really don’t have much choice.”
Lynch said that in many cases, there is about a two-month delay in getting new Toyota models.
“Occasionally, we’ll have some cars right away,” he said. “But we’re selling fewer new cars then we normally do.”
The shortage of new cars and the trickle-down effect it has on used car sales is the result of supply chain problems affecting most elements of the U.S. economy. With the supply chain of car parts, from computer microchips to other types of parts, automakers can’t produce cars fast enough.
Karl Brauer, executive analyst for the automotive data web site iSeeCars.com, said the shortage began when car makers had to shutter assembly lines at the start of the pandemic in March 2020. As the pandemic progressed and factories reopened, demand for cars surged as consumers sought to minimize their exposure to large crowds, according to Brauer.
“Lots of urban dwellers found taking Uber and public transportation less desirable than they had before,” he said.
The five fastest selling used cars in the Hartford/New Haven market during August, according to iSeeCars.com, were the Mazda CX-5, Mercedes-Benz GLE, BMW X3, Toyota RAV4 and Volkswagen Jetta.
The average used car sale price in the Hartford-New Haven market in August, the most recent period for which data was available, was up by 29.4 percent — or $6,383 compared to the same period in 2020 — according to iSeeCars data.
Rob Bernier, of Wallingford, recently bought a used Ford Explorer.
“The dealer had the car I wanted for the price I wanted to pay,” Bernier said in response to a social media inquiry from Hearst Connecticut Media. “I bought used because I saved $25,000 versus a car two years newer.”
Another Wallingford resident, Jennifer Michelle, purchased a used Volvo XC 60 in September. Michelle described the experience as “extremely easy because I did a lot of research and knew what the trade in value was for our car.”
“They tried to lowball us on our trade-in, so I told them we would sell it on our own, and get back to them when it sold,” she said. “Within 15 minutes got a phone call from the dealer.”
Brauer said the used car market has put consumers who lease their cars and are nearing the end of that agreement in an advantageous position. That’s because in the leasing process, dealerships and leasing companies are predicting what prices will be three years into the future.
“If you have a lease that is expiring soon, the market value of that vehicle is, in most cases, substantially higher than the buyout price,” he said. “In other words, you're going to get the car at substantially lower price than you would pay to get that exact same car from a dealer.”
John Paul, senior manager of traffic safety and public affairs with AAA Northeast, which serves the New Haven area, said the used car shortage is further exacerbated by how the pandemic has hurt the nation’s rental car companies and vehicle in their fleet.
“A lot of the used cars come from the rental fleets,” Paul said. “The rental fleets have been decimated; they didn’t replace vehicles because people weren’t traveling.”
Brauer said the shortage of computer microchips is particularly acute.
“They are what powers a lot of what is in modern cars, everything from keyless entry fobs to cruise controls, which require computing power,” he said. “Cars have slowly become computers or iPhones on four wheels.”
As the pandemic progressed, carmakers had to compete with consumer electronics manufacturers for the existing supply of microchips, according to Brauer.
“People were buying more personal electronics because they were stuck at home,” he said.
To help deal the increased interest in purchasing used cars, the nation’s largest retailer of preowned vehicles — Virginia-based CarMax — in is the midst of a massive hiring campaign that seeks to add 3,700 new workers by the end of the year, including 19 in Connecticut, a company spokeswoman said. That represents a nearly 14 percent increase in the company’s overall workforce.
The demand for used cars has resulted in record sales its last two fiscal quarters, according spokeswoman Lindsey Duke.
“CarMax is looking to fill existing positions and expand its workforce to support company growth and enhance its industry-leading customer experience and e-commerce capabilities,” Duke said. CarMax has Connecticut locations in East Haven, Waterbury and Hartford.
Brauer said it could be next spring or early summer before the supply chain problems plaguing automakers begins to abate.
“The microchip supply seems to be worse now than ever,” he said. “And some people have said the worst is yet to come. The only way to fix it is to develop new supply chains, run microchip factories more efficiently so they can produce more or build new factories, so you don’t have a real solution in the near term.”
Paul, AAA Northeast’s used car expert, was less optimistic the problem will be resolved that soon.
“Eventually things will get better,” he said. “I’m just not quite sure when.”