The jump in used-car prices has a variety of causes. Some are unique to the auto industry, and others are playing out across the economy. Some result from pandemic trends that are already fading, and others from shifts in behavior that could take longer to return to pre-COVID norms –- if they ever do.
Here’s an overview of some of them.
Demand conditions are unusual…
U.S. household incomes actually rose on aggregate during the pandemic, as government aid and expanded benefits more than offset lost wages. And since lockdowns limited spending opportunities, much more of the money got stashed away than usual.
“Consumers are sitting on savings that they have accumulated over the last 12 months, and are leveraging that money to buy durable goods such as cars,” said Rahim, the Cox Automotive analyst.
…so is supply
Auto factories all over the world shut down at the worst points of the pandemic. As they tried to crank production back up, a new problem emerged: shortages of semiconductors, key components for in-car touchscreens and other functions like power steering. Global output of new vehicles in the first quarter was down more than 2 million units from 2019.
That’s had a knock-on impact on the used-car market in the U.S. With a squeeze on the availability of new vehicles, many buyers turned to secondhand ones instead.
Businesses changed behavior
Among those buyers, rental companies played a key role. They usually replenish their fleets with new cars. But this year, after selling hundreds of thousands of cars early in the pandemic as travel demand slumped, they’ve been turning to secondhand ones instead.
Companies like Hertz Global Holdings Inc. and Enterprise Holdings Inc. say they’ve been expanding their fleets by buying used cars where they can find suitable ones — contributing to the surge in demand, where they’d normally be adding to supply by selling their older vehicles.
So did consumers
As well as having more savings to spend on buying a car, many Americans have also soured on other kinds of transportation during the pandemic — making cars even more essential to millions of families.
All forms of travel were sharply curtailed in the first months of the U.S. pandemic, but car usage never declined as much as planes or public transit — and it’s come much closer to regaining pre-COVID levels.
