Unless you’ve been living under a rock over the past year, you’ve probably noticed the news headlines talking about used car prices being at all-time record highs. Used car prices are so inflated, there are examples of one and two-year-old cars selling for more money than new. Can you believe that? People spending more on used cars than they cost brand new. There are several supply and demand factors at play that have made the used car market particularly lucrative. I for one cashed in on the ride. Should you?
Cutting down on expenses
So what’s the deal with used cars? As it turns out, not many people were interested in purchasing cars during the throws of the pandemic. Given the unpredictability of the situation against the backdrop of sky-high unemployment, people were more frugal with their money. In fact, there was a huge uptick in the savings rate. I for one cut back on my expenses wherever possible. So it’s understandable that people were holding back on big-ticket purchases.
Cutting production
On the supply side, if people aren’t buying as much, it only makes sense to cut production. And this is exactly what happened. To further exacerbate the problem, automakers began shutting down factories across North America due to the rapidly spreading Covid-19 pandemic. Parts suppliers followed suit, including companies that produce microchips used in all modern vehicles.
Silicon in high demand
Then came the Covid-19 vaccine. You might not know it, but those little glass vials used to store the vaccine actually use the same silicon that’s used in microchips. Couple that with the fact that consumers are back to buying electronics and automobiles and you’ve got the perfect storm for microchip demand.
The chip shortage has resulted in companies like Ford and GM cutting new car production. No chips mean no cars. And if there aren’t enough new cars to go around, people look to used cars. And that’s exactly what they are doing. According to CNBC, the average purchase price of a used car was $25,410, a huge year-over-year increase.
Cashing in on used car prices
So how did I cash in? I sold my car and got well above what it was worth prior to the pandemic. Prior to this Covid-19 fiasco, the KBB value on my car was about $7,000. As I read more and more about rising used car prices, I kept an eye on the KBB value of my car. I watched it go to $8,000, $9,500, then eventually $10,500. I shopped out quotes to companies like Carvana and Carmax, and eventually got an offer for $11,200. Add on top of that the $1,200 refund on the remaining term of my extended warranty, and ended up with $12,400 in the bank. Not too bad for a car worth significantly less just 18 months prior.
I was fortunate in that our family had two cars. With my wife at home watching our daughter full time and me working remotely, we could no longer justify needing two cars. We’re also saving about $60 per month now that we have one less car, not to mention registration fees and maintenance.
In conclusion, if you’ve got an extra car that’s not being put to good use, you may very well be able to get top dollar for it. The pandemic, coupled with a variety of issues on both the supply and demand side has created a favorable environment for those looking to sell their car.
P.S. If you’re looking to buy a new car, see if you can hold off until the supply and demand issues work themselves out. It’s great getting top dollar for your car, but not so great having to dish out top dollar for a new one.