Because of the ongoing Covid 19 pandemic, the U.S car market was turned upside down for several reasons. Although most of these issues are expected to subside after a while, the current value of used cars is the highest ever in recent history.
New car shortages are the biggest reason behind this sudden disruption. Most manufacturers use global supply chains with just-in-time production methods. Basically, manufacturers don’t stock up on components, and they are brought in according to demand and production. When the supply chains were disrupted, car assembly had to be stopped because of component shortage. The sudden shortage of new cars has skyrocketed the prices of used cars. Because of the limited amount of new and used cars for sale, prices are a lot higher than usual.
The biggest factor contributing to the sudden disruption is the worldwide shortage of microchips. When the pandemic started last year, the U.S auto industry went into lockdown and stopped production, resulting in the cancellation of component shipments including semiconductors. The microchips were then diverted to consumer electronics like smartphones and computers.
But, when the pandemic started to subside, the demand for new cars suddenly rose because of the sudden move to personal transportation. Car manufacturers were caught off guard by the sudden demand and didn’t have the components to start producing cars on a larger scale.
This has affected the production of tens of thousands of new cars, as most modern cars are very complicated to produce, requiring several chips for a single model. Along with chip shortages, the sudden cold wave in areas like Texas has also interrupted petrochemical plants that supply plastics and other materials to the auto industry.
To avoid the public, a lot of consumers have also started shopping for used cars and using car rental services, further increasing demand. Usually, rental companies replace their cars every 12-18 months, making them one of the biggest sources of used cars. But, because of the pandemic, most companies sold off their fleet when lockdown started. When the country started opening up, most of these companies had to resort to the used car market to grow their fleet.
Together, all these factors have sent used car prices flying, making now the perfect time to sell off your old car for a hefty profit as long as you don’t need to replace it. In fact, some models like the Kia Telluride are selling for more money than showroom fresh examples because of the demand.
To put things into perspective, there were around 100,000 used cars on sale in April 2021, which is 12% lower than the same month in 2020, and 18% lower compared to 2019. Similarly, the average prices have also increased more than 12% compared to 2020.
Prices of used vehicles have further increased 10.5% in June, and are expected to keep on rising till the situation subsides.
If you sell your car now, it can mean thousands of dollars more than the actual value, depending on the make and model of your car. But, as explained before, if you plan on replacing your current car, you’ll have to spend a lot more even with a good trade-in offer.
With such a disparity in the market, here are some tips to get the best value when selling your car.
Don’t delay the sale
Although a lot of consumers are selling their cars for a lot more than their actual value, there are a lot of exceptions to the rule. The market is also expected to bounce back soon. So, if you plan on selling your car, sell it off as soon as you can. As always, older models are worth a lot less than new ones even though the value is still higher than a couple of years ago. Meaning, the longer your car sits on the driveway, the more value it will lose.
According to Edmunds, prices for cars that are less than five years old have risen by up to $24,000 depending on the model and age, while cars older than 5 years have risen by only $13,250.
Have a replacement ready
Because of the current scenario, don’t expect to get a good deal if you plan on buying another car. If you need a replacement, find the best deal possible before you let go of your current car.
Trading your car in is still a good option if you’re buying a new car since the dealership will take care of all the paperwork. Although you’ll get some discounts on your new car, it will still be less than what the vehicle will be worth in the used car market.
Selling the car yourself
To get the best value for your car, the best idea is to sell the car yourself instead of going through a dealership. But, it will take more time and effort. Compared to used car dealers, you’re also susceptible to scams from certain buyers like a bad cheque or trickery. So, weigh both options and assess the risk factor before deciding on how to sell your car.
Because of the pandemic, the effort has doubled because of the extra processes required like car sanitization, DMV closures, test drives, and the paperwork involved.
Do your research before finalizing the deal
Because of the radical difference between used car values in the modern market, always take your time to shop around and get in contact with several dealerships. Because of the car shortage, most dealers are desperate to build their inventories. So, evaluate your car with several dealerships before selling your car. Some dealers will offer more and overlook some damages on the car.
Buying back your leased car
If you leased your car, it’s not a good idea to turn it in. Since the price is set based on the expected value when the lease began, it makes more sense to buy the car back and sell it later for a higher value.
In some states, leased cars cannot be sold immediately after buying them back without a dealer license, but it doesn’t affect individuals in most cases. So, double-check with dealers before buying the car back to make sure you can flip it for a profit.