According to the Consumer Price Index, the value of used cars and trucks has increased by at least 21% in recent months. According to reports from other car websites, such as Car Gurus, the values have increased by more than 30% in the last year. The value of used cars continues to rise month after month and will continue to do so as long as global issues persist.
The Growing Demand For Used Cars
In either case, used car values have increased due to a single factor. The demand has grown to such an extent that dealers are struggling to keep up. Due to a lack of supply, used car dealers have had to alter their business models.
Like the rest of the country, the new car industry has struggled with a labour shortage. The pandemic has resulted in a significant shift in the economy and labour force. Factories are operating with understaffed and overworked crews. Costs associated with overtime have increased for the majority of major carmakers. Payroll limits can be exceeded as a result of overtime expenses. As you are probably aware, high payroll costs eat away at profit margins.
At the moment, there is a global shortage of computer circuits and components required for new automobiles. The deficit is directly related to a labour shortage. Each station on the production line requires personnel to pump out the parts needed to build the circuit boards. The absence of workers equates to slower production. Slower production results in a reduction in product availability. This cycle will continue indefinitely until it reaches a halt.
A shortage of workers and an inability to obtain necessary components has resulted in a decline in the new car and truck industry's sales. Profitability reductions necessitate downsizing and layoffs. The cycle becomes worse when skeleton crews are left with even fewer people to perform all necessary functions. Employees who are overworked have a tendency to leave the company for which they work. This will further reduce the workforce, putting additional strain on those who remain. As a result, more people will leave, escalating the problem.
Consumers have recognised that used automobiles for sale have become prohibitively expensive. If you have a reliable vehicle, trading it in at the moment is not justified. Because the majority of the country feels this way, trade-ins have decreased significantly. Trade-ins and wholesale purchases are critical components of the used vehicle business. Since people are retaining their existing rigs, the industry has been forced to rely on outside sources to keep their lots stocked with options. This flood has increased wholesale prices, which have been passed on to you.
Across the country, people prefer to lease their vehicles. It enables you to have a car in good condition, and when you are ready to upgrade, you can trade it in for something else. The increased costs have reduced the number of people returning their leased vehicles. This results in even fewer cars being available, further increasing the cost.
As you can see from the diagram above, everything is connected. It is a massive supply-and-demand circle. The current pandemic, coupled with the scarcity of replacement parts, breaks the circle.
This break has increased the prices of new and used cars. As prices rise, supply will decrease, and demand will increase. Increased demand necessitates an increase in prices. This circle must be broken before the used car industry can return to standard operating costs. To get a price on your used car check out our sell my car calculator.