She was shown three cars that were priced at her limit of $7,500. Schrier stated that the woman was shocked.
“That’s what I get for $7500?” He recalled her saying it. She was surprised at how much mileage and age the vehicles had.
The woman settled on a 2013 Toyota Scion with 160,000 miles. Schrier doesn’t believe he made any profits from the deal. He said, “We just helped them out.”
It is the same scenario that many dealerships across the country are seeing as used vehicle prices rise beyond any reasonable level. Buyers are priced out of the market as prices have shot up so quickly.
Edmunds.com reported that the average cost of a used car in November was $29,011 – a staggering 39% increase over the previous 12 months. For the first time, the majority of American households have lower incomes than what is necessary to purchase a used car at the average price.
It is now almost impossible to find a reliable vehicle or a car for less than a thousand dollars these days.
Schrier, who has sold autos for 35-years, said that “I’ve never seen anything remotely like this — it is crazy.” “It’s very frustrating for so many people right at the moment.”
The government reported that consumer inflation rose 6.8% in the twelve months ending in November, the largest factor other than energy. Although the increase in vehicle prices is slowing down, experts believe that they will not decrease for the foreseeable future.
This can be directly attributed to the pandemic’s emergence in March last year. To slow down the spread of the virus, auto plants stopped production. With fewer new cars being sold, people started to trade in their used trucks and cars. The demand for monitors and laptops from those who stayed at home meant that semiconductor manufacturers had to shift production away from automobiles which rely on such chips to produce consumer electronics.
When a swifter-than-expected economic rebound boosted demand for vehicles, auto plants tried to restore full production. However, chip manufacturers couldn’t react fast enough. Rental car companies and other fleet buyers were unable to purchase new vehicles so they stopped loading older vehicles. This only added to the problem of a shortage of used cars.
As difficult as the used-car market may be, the shortage of computer chips has driven up new-vehicle costs. Edmunds.com reports that the average new vehicle is now at $46,000.
However, used car prices are expected to rise in line with newer models. The average price of a used car has risen 42% since the pandemic began, more than twice the increase in the cost of a new one. The average cost of a used vehicle was 63% less than the average new vehicle. It was 54% before the pandemic.
Schrier must now tell lower-income buyers that there are very few vehicles for sale.
He said that a $5,000 car used to cost $8,000. He said that what was once $8,000 is now $11,000, or $12,000.
Edmunds calculated that the average vehicle costs $520 per month when you include taxes, fees, a 10% downpayment, and an interest rate around 7.5%. This is even if the loan term is nearly six years.
Kimberly Palmer, personal finance specialist at NerdWallet, stated that to make this payment and pay for other necessities such as housing, food, and utilities, a household would need to earn approximately $60,000 per year or $75,000 before taxes. According to the Census Bureau, the U.S. median household income pretax was $67,521, in 2020.
Palmer stated that “the average person” cannot afford a used car.
Edmunds senior manager Ivan Drury said that although he doesn’t track used vehicle prices relative the household income, November was a record for affordability.
He noted that the average monthly payment for a used vehicle was $413 in two years, $382 five year ago, and $365 ten years ago. Drury stated that the November average payment for a used vehicle was $500, which is roughly the same amount as what was required five years ago to buy a new vehicle.
Palmer stated that people will have to make difficult decisions and cut back on other areas. It’s stressful for many families.
Karl Hogan, a Pennsylvanian near Pittsburgh, was able to sell his Toyota Tacoma small pickup truck with over 170,000 miles last month because of the high prices. A man from Ohio paid $6,500, despite the vehicle’s mileage and age.
Hogan did not have to lower his asking price. He told potential buyers that he had 12 more men behind him when they offered him less money.
Hogan was on the opposite side of the equation a week prior to the sale when he purchased his new Tacoma. The $38,000 price tag was not a concession by the dealer.
Hogan stated that if Hogan didn’t accept it, there would be three people waiting. Although I couldn’t get any off the truck, I wanted a new one.
David Paris, J.D.’s senior manager, said that he was a frequent guest on the J.D. Power noted that used vehicle prices are directly related to new vehicles. Paris stated that even though some automakers claim that there is an improvement in the supply of computer chips, dealers continue to pay higher prices at used vehicle auctions through November.
He stated that he didn’t see any price drops, which is unusual for this time of year.
Paris stated that there are approximately 1 million vehicles for sale by new vehicle dealers nationwide — less than a third of the usual supply. The vast majority of these vehicles have been sold.
Prices for new vehicles will remain high due to the pent-up consumer demand. The supply of new vehicles is expected to return to approximately 2 million to 2.5 million. Automakers may then resume discounting. This could last well into 2023. The pressure on used vehicle prices will eventually ease once new vehicle prices have dropped.
However, even after this, vehicles may not be available because of the fact that traditional sources of used cars — leases, trade-ins, and autos sold by rental companies — have virtually dried up.
Cars returning from three-year and two-year leases have been a major source of nearly-new vehicles for the past decade. Edmunds’ Drury said that this was the time when over one-third of U.S. vehicle sales were leases. Now, however, it is only 22%. People with expired leases often buy those cars, as there aren’t many new vehicles.
Another source of used late-model cars is the rental companies. They are unable to buy new vehicles right now so they keep what they have. Some rental companies even buy used cars. Paris anticipates that the shortage of used cars will worsen by 2024, given all these factors.
The few consumers that stand to gain are those who sell used cars and don’t need to replace them. Paris stated that October’s average trade-in value was $9,000, twice the amount it was one year ago.
For those with low incomes and no vehicles to trade in, there are limited options. Palmer of Nerdwallet stated that lower-income individuals may have to cover repairs in order to keep their vehicle as reliable as possible. However, even that option can be prohibitively costly.
J.D. J.D. A few thousand dollars was shaved off the price of a new Ram pickup. However, he had to travel from Washington, D.C. to Philadelphia to find a dealer willing to sell him the vehicle. He had searched the internet for dealers.
He said that if you are patient and look hard enough, you can find deals for most brands.
