If you have been in the market for a car in 2021, you will know the current predicament that is helplessly ravaging the market today. Yes, we are talking about the global pandemic that messed up the entire economy. Not only did it create the most significant health crisis of the century, but it has also wreaked havoc on the economy. Because of several different reasons, the prices of various items in the market have skyrocketed way past their average values and are currently being priced at a premium. So you don’t want to pay a premium, and neither do we. Among this trend, the car market received a significant hit, as the entire supply and demand chain has been disrupted. Why, and how? Well, that’s what we will look into.
If you have been entirely unaware of what is going in the car world, let us fill you in. Ever since the pandemic hit, the prices of both new and used cars have shot through the roof. Prices are at an all-time high, showing no signs of stopping. Someone who has been in the market, wishing to purchase either a new car or a used car, would have to rethink their decision after looking at the prices. So even if you look up something like a used Honda Accord for sale, which typically should be pretty affordable, you might be shocked at its listed price.
A significant reason behind this situation is the disruption of the supply and demand chain. With the pandemic hitting the globe, there has been a substantial shortage of semiconductors worldwide. Semiconductors are crucial in the manufacturing of electronics. A modern car cannot run without a semiconductor chip, as that would mean that the vehicle would have no electronics, which is not an option in the 21st century. Because of this shortage, the supply has been cut short. As a result, major car manufacturers cannot fulfill their vehicle quota, and the supply chain has been quite limited. But the demand has been growing, especially since things are starting to calm down now. People are going out more, and they require cars now more than ever. As a result, the demand keeps rising. But what happens when the supply cannot keep up with the demand? The prices rise. That’s precisely what has happened.
The trend is not only limited to new cars. It has affected the price of used cars too. When COVID hit, the car rental companies sold their entire fleet in order to survive the pandemic. Since the restrictions are being lifted now and people are going out more, the car rental companies are trying to buy back the sold cars, but the stock of used cars is limited, unlike new cars. As a result, the demand for used cars is also increasing. Not just car rental companies, but regular people, stunned by the average prices of new cars, gravitate towards used cars. This eventually leads to ridiculously high prices even in the used car market.
Cars.com stated that in August of 2021, the average listing price for a used car was around $23,994. This figure stands 33.4% above December 2020 and 34.3% higher than August 2020. The average price of used cars has been slowly but steadily increasing, month after month, in 2021. However, if you compare the average price from June to July, it only increased by a mere 2.2%, and from July to August, the climb was an even minuscule 1.3%.
Among the usual suspects, we can notice a trend that SUVs and crossovers have their prices shooting up more than the other cars. It is simply because crossovers are more popular than sedans and hatchbacks, and so, their prices would naturally rise. On the other hand, pickup trucks have also seen their values increase since they are popular among Americans. However, we notice that their prices have slowly started to taper down, month after month. The rise from the beginning of the year to May-June was quite steep. However, the price increase from June to August has been comparatively low.
While new car prices are also at an average of $40,000, which is higher than ever, David Paris, the senior manager of market insights at J.D Power, states that the average prices are up by 30% this year.
So, does that mean the prices are going to continue to fall? What would trigger the entire market to go back to the old times? Will we ever go back to the way things were? These questions might be hovering in your mind, and you are right to ask them. While there is no concrete answer, we don’t expect the prices to transform to what they were before the pandemic hit. When it will all stop, well, that will depend on when the supply of new cars becomes normal again. They can only become normal again after the semiconductor shortage has ended, and the store becomes normal. If that happens, we can expect the prices to go down. But, according to Sam Fiorani, the vice president of global vehicle forecasting at AutoForecast solutions, the shortage isn’t going to go away anytime soon. So while we can expect prices to not increase by giant leaps, the costs will still grow.
Until and unless the new car production returns to normalcy, the prices of used cars are not going to cut down. But nobody, for sure, can state when that will happen. It might take a few months or a few years. However, buyers can still look for used cars if they need one. This whole situation can allow you to find a used car that is reliable.
Also, car dealerships are offering deals and warranties that might attract customers. Yes, you might have to pay a premium, but the car you get would also come with its benefits. So should you wait until the prices normalize? Well, honestly, nobody knows when that might happen. So if you do need a car right now, you should go and grab a used car while the prices are plateaued.
