Cars keep getting more expensive. Understandably so, because almost everything else around us is becoming outrageously costly.
And it’s not just new cars. Used cars have been getting more expensive in the last couple of years, to the point where their prices are comparable with new car prices. So, why are used cars becoming so valuable?
After some digging, we concluded that used cars are so expensive because of the chip shortage. Without new chips, it becomes difficult to manufacture new cars. This results in a shortage in the new car market, thus creating a huge demand for used cars. Dealers taking advantage of market failures, a booming online marketplace, and covid 19 have also played a role in the high used car prices.
Let’s look extensively into these issues and see whether the high prices for used cars are justifiable. Read on to learn whether it’s a good idea to buy a used car in 2022.
Are Used Cars Really Becoming Unaffordable?
Classic cars and old rare one-off cars have always been expensive. However, when we talk about expensive used cars, we mean ordinary mass-produced vehicles.
The used car market has seen a huge surge in the past two years. According to the BLS, used car prices are up by 40% from last year, while new cars are only up by 12%.
Average Cost of a Used Car in 2022
Of course, the price of a used car depends on a few factors, including its brand, type, mileage, and general condition. However, all used cars are more expensive this year than in 2021.
According to CNBC, prices for cars that are 1 to 3 years old average at $41,121.
Why Are Used Cars So Expensive Right Now 2022?
There are several factors behind the huge price surge in the used car market. Here are some of the main ones.
The Chip Shortage
The microprocessor industry is witnessing one of the biggest chip shortages in history. Since modern cars are like computers on four wheels, they need microchips to control everything from the climate control, navigation system, and window controls.
As a result, the chip shortage has disrupted new car production schedules and caused a huge new car shortage.
Thanks to mass vaccination, the Covid 19 pandemic seems to be under control in 2022. However, its effects can still be felt in the economy.
Most vehicle manufacturers had massive layoffs in 2020 due to the pandemic. Even as they recommence production in 2022, there’s still a significant new car shortage in the market, which will take some time to fill.
Dealers Taking Advantage of Market Situations
Since there’s such a huge demand for used cars in 2022, dealers can now set the prices. For the first time in history, they can tell the customer, “It’s okay if you don’t buy because I have ten other people waiting for this car,” while in the past, it has always been, “What do I have to do to get you this deal?”
Now that the tables have turned, dealers are in control, and they’re not afraid to ask for crazy prices.
In 2022, fewer used cars are sold at dealerships than on social networks. With social media and online used car marketplaces, you just need to post some pictures of your car, a short description, and the price and wait for the buyer to find you.
This eliminates the need to take a used car to an auction or dealership and reduces the colossal middleman fees. More importantly, the seller can set their desired price, however unreasonable, and wait until they get someone who’s willing to pay.
Most Expensive Used Car Ever Sold
It is not uncommon or even surprising when a 1962 Ferrari 250 GTO sells for $48 million at an auction.
Rare classic cars are like art and appreciate over time. What’s surprising is when a typical family car from the 90s sells for thrice its initial price in 2022.
Donut media made a video reacting to some of the most expensive used cars in 2022. The list shows how expensive used cars have gotten in the past year.
Now it’s common for a classic JDM like the Integra Type R to sell for $100,000. However, the most surprising car on that list is a 1985 Volkswagen Cabriolet Wolfsburg Edition that sold for a whopping $70000, up from its MSRP of $14000.
When Will Used Car Prices Drop?
Since about 90% of the car prices problem can be associated with the chip shortage, they may drop when there’s a sufficient supply of microchips.
Although Ford had predicted that there would be a steady supply by the end of 2022, no one can really tell because there are new factors at play, such as the current conflict in Europe.
Ukraine supplies about half of the neon used to make chips. With the country under attack, the chip shortage is likely to continue.
Is Now a Good Time to Buy a Used Car?
It really depends on how much you need a car. If you really need a car, you should buy a used one for two reasons.
First, new cars are even more expensive, and in most cases, they’re taking weeks or even months to ship from the manufacturer due to the chip shortage.
Secondly, used car prices don’t seem like they’ll drop any time soon, so the sooner you buy one, the better.
Are Used Cars Worth It?
It boils down to the specific used car you’re buying. A well-maintained used car at a reasonable price is definitely worth it in this climate.
However, I personally feel there’s no excuse for buying a used 1990 Ford Tahoe for $100,000.
What to Avoid When Buying a Used Car
Here are a few things you should watch out for when buying a used car.
Salvaged or Rebuilt Titles
When buying a used car, it’s essential to make sure that it has a clean title. If it has a salvaged or rebuilt title, it means that at some point in its life, it was in a horrible accident or flood that totaled it.
While rebuilt cars might look flawless at first glance, they don’t have as much structural integrity as they did from the manufacturer.
Missing Service Records
Service records show the car’s maintenance history. If a used car doesn’t have comprehensive service records, it might mean that it’s not well maintained.
If you’ve bought a used car before, you probably know how important its mileage is to the price. Typically, the lower a car’s mileage, the better its condition.
However, don’t make purchase decisions based on mileage alone. Some high mileage can be well maintained and in better condition than lower mileage cars.