There's a shortfall of some 8.1 million cars that are not reaching the used market today, and used car inventories are near the lowest levels in over a decade.
America’s car market operates in a giant cycle. No one planned it. But an interruption in one part of the cycle affects all the other parts. Waves that rock the new car market ripple through the used car market years later.
Americans have spent most of the past two years dealing with record-high new car prices. The average price paid for a new car recently fell below sticker price for the first time in nearly two years. Even that good news can be misleading because sticker prices themselves are near all-time highs.Early COVID-19-related shutdowns will affect us for years Finkelmeyer is senior director of new car solutions at Cox Automotive, the parent company of Kelley Blue Book.
New car factories, anticipating a massive drop in demand as many Americans reduced their driving, halted or slowed production for months. Demand for new cars recovered as the economy recovered and government programs injected new money into it. But a global microchip shortage kept production low. A lease typically includes a fixed price the lessee can pay to purchase the car at the end of the lease. When car values soared, many could buy their car for an amount less than it was worth at the end of its lease.
Used car buyers paying much more for less “Before the pandemic, the average price of a used car was $19,827, but it’s now $26,686 ,” Finkelmeyer notes. “The pre-pandemic average used vehicle had 65,000 miles on it, but now the average mileage is 71,000 miles .” That leaves today’s used car buyers “paying 35% more for a vehicle with 9% more wear and tear.”Automakers building lots of expensive new cars To add to the effect, carmakers started focusing on building more expensive cars.
Automakers are building fewer cars and focusing on producing expensive models. “Most plants are currently running at about 80% of their pre-pandemic production levels and are continuing to build a very expensive mix of new vehicles,” Finkelmeyer notes.This pattern could be with us for years What will reverse the pattern? Nothing anytime soon, Finkelmeyer says.
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