even before the pandemic i noticed that prices on used vehicles have been climbing. seven years ago, when my younger son was looking for a vehicle to replace his previous one, i was startled to see 5-figure prices on numerous vehicles with 200,000+ miles. i realize this is just anecdata but i wonder if a deeper dive into the longer term pricing statistics might reveal a deeper trend.
Thanks to decades of car-centric urban design in the U.S., this situation puts livelihoods and physical health at risk.
The American precariat continues to be boxed out of even a basic sense of economic security
“How could this have happened?”
The underlying force is surely that modern cars are extremely reliable and safe. A 1988 daily driver would have been a pile of rust by 2000. But a 12 year old car now probably won’t even have significant maintenance costs.
that’s really a good point. my 2009 prius with 170,000+ miles on it requires little more than regular oil changes and the occasional new tire. because of the nature of the regenerative braking system i have yet to need a brake job.
Is this a case where the high end drags up the average? The average new car price is something like $45k! My budget is less than half that. What’s the median?
I know when I bought my car around 4 or 5 years ago there had been a big spike in used prices for several brands.
IIRC part of what had happened is that most automakers had been offering kind of insane lease rates (eta: and terms they were pushing 3-5 year leases). Driving most people to lease, and feeding into a lack of used cars. For years there, fewer people were buying cars. Selling them after x years, or trading them in at dealers. Causing a couple years of high used prices.
When those leases came due for turn in there was an expected flood of used cars. Right around when I was buying.
However for some brands like Subaru (what I was looking for) and Toyota. With traditionally high resale value. The lease terms had been so good, it made far more sense to buy the car after the lease term. So few people ended up turning the cars in.
Basically lease returns are the major source of used dealership cars. No lease returns, shifts those off to the general used market. Which raises prices there.
From what I gather there was something similar happening with trucks. They’re increasingly popular, and people just don’t sell trucks at the same rate they do other cars. Many people just drive them till they rust out.
I believe the “average” in question is the median. I happened to be looking this up for whatever reason a couple weeks back. Stats on that are usually tracked as median. It’s also based on actual sales, rather than MSRP or something.
This is simplistic. Domestic (American) semiconductor production has been shrinking since the '70s. Chip foundries are concentrated in Korea, Japan, and China and tensions between those countries led to stockpiling of basic materials and intermittent supply chain disruptions even before the pandemic. The grudging turn towards electric vehicles among the big automakers and the push for self driving cars increased demand for electronic components just as pandemic constraints on shipping exacerbated existing shortages and made it impossible for foundries to adjust production.
I design thin-film equipment used in semiconductor manufacture; we’ve seen lead times for common components go from 2 weeks to 40 weeks. Nor are the shortages limited to electronics- they cross the spectrum of materials that we use- high vacuum valves and heaters are out 6 months or more, and the cost of raw materials has skyrocketed. I know some of the big manufacturers are trying to return to normal production this year; Toyota plans to deliver 1M vehicles/month this year - but from where I sit, it’s going to be a long while before the issues are resolved.
hmmm, it feels like we’ve been here before. My daughter, new college grad, just married, decided to find out if buying a house was an option. Went to the bank (local CU) and was preapproved for $350k! That’s more than I would expect to spend, and I have income to back it up! Having been through 2009, this feels frighteningly familiar…
Yes it does, doesn’t it? IIRC my econ class correctly, with interest rates at or near zero since 2009 (or earlier), money is cheap, which now means there are too many dollars chasing too few goods. That leads to inflation, like what we’re seeing here.
I’m afraid that there’s another crash coming, and it ain’t gonna be pretty.
you are not alone in that assessment:
I bought my '04 Tacoma 5 years ago for $10k in order to pull my boat. I drive it maybe once a week to the store and back. I could sell it tomorrow for $10k. They’ve always said cars are depreciating assets but doesn’t seem so in my case.
Tacos are a pretty extreme case when it comes to this. They’ve had some of the highest resale values (proportionally) of any car on the market for a REALLY long time. Trucks in general as well, and Toyota is always in the top 3 brands for holding value.
I think Tacomas have been like the single most value retaining model for more than a decade.
So glad I was able to get a new to me Corolla last year. It was 11 years old, but a third of the average used car prices. Prices were already climbing then but I bet I saved a grand or two on what it would be now.
Yes, used car prices hinge on supply and demand. Supply is way because used cars wear out/get in wrecks. I remember the well meaning cash for clunkers program also reduced the used cars on the market, raising their prices.
"but demand is unexpectedly exploding as employers force workers back to the office, "
Unexpectedly??? With any market, an artificial lull in demand because of what ever - in this case the pandemic - means it will come roaring back when things start to get “normal”. But at the same time, if you aren’t selling cars, you can’t pay workers to make cars then sit on them for a year. And now they have supply issues for some of the components, specifically chips for the computer systems.
I got a couple acquaintances who work at the local Ford plant. Their work has been wonky with everything going on.
Part of the problem as I understand it, is that most vehicles use specialized micro controllers through out the car. More and more of these have been added through out cars over the last 20 years. Now chip manufacturers are trapped in producing a number of specialized chips, when they’d rather produce a few chips. Newly designed vehicles, like Tesla’s have less chips, and use more “centralized” CPUs. What car manufacturers need to do is re-engineer and simplify and consolidate, which admittedly isn’t an easy thing to do, but might be a necessary thing to do now.
Thanks for sharing that. I read through the entire article. I wholeheartedly agree with Hoenig. He’s seen it happen before, and predicts it will happen again. What’s more, this whole “quantitative easing” thing mainly benefits the already-rich. It seems to be a way to get money into people’s pockets in a roundabout way (ie, by trickling down from the rich, which as we know, doesn’t happen). It would be better if the initial $600B, then the subsequent billions, were put directly into the pockets of wage earners, rather than giving it to banks, to lend and speculate with.
What’s fascinating is that the Fed’s own study into this QE experiment showed that the unemployment rate, which was the target of QE, would only go down by 0.03% (I’m assuming that means from, say, 7.8% unemployment to 7.797%). That’s not much of a drop in a bucket.
I have an '03 Tacoma, and plan to keep it for another 20 years.
Story related to used car prices: My nonprofit had a member pass away, and the organization was bequeathed the car the member had. It was a 3 year old Mazda of some sort. At the time, (around March 2021), the dealer offered to buy it back for around $18k. By the time we got a duplicate title, etc, and were able to sell it (Nov 2021), we ended up getting about $28k for it from Carvana.
Used car inflation is no fairy tale.
My [no CA. smog requirement] 1974 Dodge pickup gets a note [offer to buy] on the windshield every time I go to Home Depot. It’s a hot item for contractors/handy-people, I park it very close to the front door to ward off thieves, the removable steering wheel helps too.
I found it amusing that the thing that was opposed by the Lone Wacko in the Fed was so obvious it’s even obvious to famed economist Brian Eno.
The low end new cars that used to be available have all but disappeared in the US.
It really sucks that you can’t buy a Fit anymore. Those are super practical and would serve the needs of most people who are in the market for a budget car. Lots of manufacturers have just decided to get out of the business of building sedans or hatchbacks at all. The only traditional “car” that Ford even sells here anymore is the Mustang.