Supply and demand. It’s the way of the world, and has been ever since people started to trade grain and goats. Think of it as a balance between two needs – the company’s need to sell you stuff versus your need to buy it. That’s why prices go up at times of high demand, because companies can charge more when more people want their goods, but prices fall when demand is less, and companies need to entice you to buy.
So why are used cars so expensive right now?
There are several reasons why prices of used cars are so high at the moment, but one of the main causes is…
The Covid-19 pandemic
Think back to the early days of the pandemic, in 2020, when everyone was told to stay at home. Cars sat gathering dust and cobwebs, and the price of gas went into freefall, but now that things have opened up again and everyone’s travelling here, there and everywhere, the cost of a gallon of mid-grade has gone stratospheric.
It’s also why you pay a huge amount more for a vacation during the school break, but that’s another story. And yes, there are other global market forces at play at the moment, but the basic premise remains the same – if more people want stuff, the more they’ll have to pay for it.
And that’s why we’re in a situation where used cars are hugely expensive. You see, despite the fact that magazines, websites and video channels are full of new cars, the fact is people are struggling to buy them at the moment. Why? Well, it’s that pandemic again.
Chipset shortages
To reiterate, we all had to stay at home, and unfortunately the manufacture of anything is not a task that can be done in your living room. Apart, perhaps, from knitting. Anyway, some of the people who had to stay at home had been gainfully employed making the semiconductors – or chipsets – that appear in electronic systems everywhere, be that computers, mobile devices, televisions and cars. This has caused chipset shortages that is proving difficult to catch up with, given Covid-induced staff absences and a shortage of materials.
And much to the car industry’s chagrin, it’s finding that it isn’t first in the queue. Tech firms such as Apple and Microsoft are well ahead of it, and show no sign of stepping aside. As a result, the car industry can’t build cars at the rate it needs to, and so can’t get vehicles out to customers. Which brings us back to the whole supply-and-demand thing.
The new-car market has come to a shuddering halt because people aren’t willing to wait up to a year for the vehicle they want, so they’re turning to the used market instead. But people are also hanging on to their vehicles, so demand is far outstripping the supply of even used cars at the moment.
Car leasing and forced turnover
In addition to that, the car-leasing and personal-contract-purchase sectors are reliant on new cars, and this forced-turnover area of the market is further exacerbating the shortage of both new and used cars.
Those with a car that’s coming to the end of its lease are finding that they cannot get a replacement in a reasonable timeframe, so are either choosing to hang on to their current cars and extend their current lease agreements or are being forced into the used market.
Similarly, those coming to the end of PCP agreements are being either forced to pay the balloon payment to take final ownership of their car or are handing back their cars and buying a used to car to see them through until the shortage eases.
All of this means that there are far more customers than available vehicles, and the situation shows little sign of changing through 2022. Indeed, some commentators are saying it could last well into 2023.
The upshot is that the people selling used cars are rubbing their hands with glee, and have been able to hike prices in the face of overwhelming demand. Great news if you’ve got a used auto that you’re keen to get rid of, but much less so if you’re one of the multitudes who has no choice but to buy a secondhand car. Supply and demand. Grain farmers and goatherders throughout the ages could empathize.
So how can you make the current situation work in your favor?
Sell your used car… maybe
Well, the short-term answer is to sell your used car and make a killing. Boom! People were doing this regularly even before lockdown, including us at Haynes. We bought a Honda Pilot for $12,000, did some repairs ourselves and sold it for $17k. Not bad. However, there’s a kink in this process at the moment. Unless you plan to use the profit you’ve made on bus fares, you’ll then face the issue of replacing your used car. But used car prices are at an all-time high. See the problem?
The better thing to do could be to hang on to your used car and run it as cheaply as possible in this era of skyrocketing gas prices. And the most economical way to run your car is the same as it has always been – the Haynes way.
In other words, use it as little as you can get away with, and do the service and repairs yourself, making full use of the automotive encyclopaedia that is the Haynes database. Not only will you avoid having to pay interest on finance, but you’ll also save between 30% and 60% on labor charges. That’s got to be worth thinking about.
It’ll be a while yet, but the market will revert to some semblance of normality, at which point you might want to think about replacing your car. Until then, you’d be wise to hang on to what you’ve got and get out the spanners yourself. In a world facing a cost-of-living crisis, sticking with what you know while learning useful home-repair techniques, has to be a win-win.
