As new car inventory dries up, more are turning to the used car market.
Last year, dealers were tripping over new cars as the COVID-19 pandemic and an economic downturn wreaked havoc on the market. This year, sales have rebounded dramatically. However, a confluence of robust demand and diminished manufacturing capacity due to the current global chip shortage means buyers can’t get the new cars they need. As people start to travel again, even renting a car is a difficult venture, leading rental car companies — who sold off inventory to stay afloat last year — to throw themselves into the fray buying vehicles at auction.
Long story short? Used car demand is trending even higher, sending prices soaring to record heights, as Bloomberg reports. It’s a great time to sell then, but you may feel the pinch if you’re looking to buy.
Automakers are prioritizing new retail sales
Rental car companies, for their part, are in uncharted waters as they try to snap up inventory before the summer travel season. “You would never go into auction to buy routine sedans and SUVs,” said industry consultant Maryann Keller. “These are special circumstances. There is a shortage of cars.” Indeed, rental fleets typically feed into this used car market when they turn over their fleets for new models. While the price jump will impact their bottom line, these companies will likely run stronger profits as they can charge higher rates to rent out cars.
“The global microchip shortage has impacted the entire car-rental industry’s ability to receive new vehicle orders as quickly as we would like,” Hertz spokesperson Lauren Luster said to Bloomberg. They’re working to grab low-mileage used cars, as is rental car industry leader Enterprise. Until automakers are able to make up fleet sales — those like Hyundai saw a 27% drop in April as they dedicate resources to filling retail orders — the inventory squeeze will likely continue as long as customers outnumber cars.
Experiencing the insane used market firsthand
If you’re thinking about buying a used car for yourself or even just traveling in the near-future, keep the state of the used car market in mind. However, if you do have an extra car to shake loose, it is an excellent time to sell over the next few months, while the global chip shortage hopefully abates and new car inventory bounces back.
As a case in point, I have a personal story with online retailer Carvana. They paid what I considered to be a fair offer on my 2016 Mazda CX-5, which had just over 60,000 miles at the time. After offering a touch over $13,000 in late 2020, I ended up with $18,000 by April 2021. For reference, this Grand Touring model cost $32,000 to buy new. That more or less landed in line with third-party valuation sites for trade-in or the lower end of private party values. I pulled the trigger, since that paid off the lien and put some money back in my pocket.
And now? Those same valuation tools put this car over $20,000. That’s a classic story of knowing when to sell. Still, both new and used car markets will likely continue to fluctuate as all these factors play a role.