As we come out of a once-in-a-century pandemic, the economy is gradually changing gear. However, price leaps have been reported for many consumer goods recently, from nappies to timber. Notably, in April 2021, the Consumer Price Index witnessed its biggest year-on-year increase since 2008.
A particularly relevant price hike for gearheads is that of used cars, leaping by about 10% in April 2021 from the month prior. A jump like this hasn't been seen since the 1950s.
With all that said, the exact cause (some say it's solely because of conventional inflation, others say it's entirely the result of coming out of a year-long slumber), plenty of individuals in the car industry believe it's down to a range of factors.
Let's take a closer look at why the cost of a used car recently shot up.
The End Of A Long Road
This Summer, 2021, the world is gradually coming out of a more than year-long pandemic that will undoubtedly leave a profound mark in history. The automotive industry, like various sectors the world over, was hit hard by Covid-19. For one, the productive capacity of automakers was afflicted by lockdowns and other restrictions, while supply chains, in general, were stifled for the same reasons. Another key factor in reduced car production was, of course, a decline in demand.
With consumers either saving (with less people making major life decisions like buying a new home or even another car) or doing what they could to get by, car sales saw a whopping 15.83% drop in 2020 over the previous year. This was the sharpest reduction in domestic car sales since 2009. However, things are starting to change with every month of 2021 thus far seeing higher car sales when compared to the same time periods last year.
Some Reasons For The Price Surge
With the country returning to normal, the demand for cars is continuing to near consistent pre-pandemic levels. Despite this, automakers have some catching up to do.
Supply Chains And Production
Between a shortage in some materials (especially computer chips) and the naturally slow process of churning production back to where it was before Covid arrived, this difference between the supply and demand is a significant reason for April's 10% hike in prices.
People Are Ready To Spend Again
Another cause is arguably the money that some have been able to save over the past year since Americans spent far less time, if any, at bars and restaurants (with 2020 being as sociable - in any practical sense - as a hermit convention). Of course, many individuals and families simply struggled throughout 2020, but for those who could hang on to some cash, now feels like a good time to spend again, further adding to demand.
In fact, used car sales stood at around 3.4 million in April 2021 (58% more than for the same time last year). With prices increasing for new cars, some have turned to used cars, and while these, in turn, have become more expensive, a used ride can be a better deal either way, depending on a driver's needs and preferences.
Rentals Are Down
In a normal year, rental car companies from Alamo to Enterprise to Thrifty would be selling vehicles numbered in the millions back to dealerships so that their collections could be revitalized.
However, rental companies decided to sell off a large percentage of units as Covid began to grip the world. This was because demand was down and also for purposes of financial survival. For this reason, you've now got less cars available in the rental market, causing their prices to skyrocket too. Again, this has contributed to used vehicle costs darting upward.
Less Cars Are Being Repossessed
Something else worth considering is that cars are not being repossessed to the extent they would have before Covid. Though we can't say for sure, government aid is likely the main factor here, given that the government provided direct payments to American families through 2020 and in 2021.
Since some dealers purchase repossessed vehicles and sell them at auction, this again pushes prices up across the board due to a shortage, whether for dealers or, as an extension, the used car market.
Why This Is Unlikely To Last
Now, anyone who claims to know what the future holds should think carefully after what we just experienced in 2020, but plenty of economists are confident that the current increase in the Consumer Price Index will be relatively short-lived. If their assessment is correct, prices will stabilize in the coming months. Either way, carmakers will be eager to get production back to pre-Covid levels.
It may, therefore, be a pretty good idea to wait a while before buying a used car. There's no doubt, April was a great time to sell a used car, but it's fair to say that most of us would just like some normalcy after, you know, a once-in-a-century pandemic. One way or another, the used car market is on the rise and looks sure to have a bright future ahead.