Used car prices are on a downhill trajectory that is expected to continue through the rest of the year. In the meantime, new car prices continue their upward climb as do costs of maintenance, repairs, and insurance.
Wild Ride of Used Car Prices
Used car lots have traditionally been the hunting grounds for those looking for inexpensive transportation. However, the chip shortage and supply chain woes that arose during the pandemic set that tradition on end.
Chip and supply problems led to reduced new car manufacturing. That sent more buyers to the used car market. In turn, the increased demand for pre-owned vehicles led to price increases.
The average price of a used car went from $21,700 to $31,000 between February 2021 and February 2022, according to the CarGuru Index. That was an unprecedented 37 percent increase.
Used Car Prices Now
In the middle of last year, wholesale used car prices began to creep lower. Retail prices eventually began to follow suit. In October, the average used car price fell below $28,000 for the first time in over a year. Today, the average is about $27,000. That is roughly a $1,000 drop. However, it is still well above the $21,700 of two years ago.
So, the good news for consumers is that used car prices have fallen. The better news is that they are expected to fall further.
The reason used car prices are in decline is that new car manufacturing is ramping up again.
“In the first half of the year, economic uncertainty (and possible recession) will be the driving force for declining prices (and soft demand),” notes automotive analytics firm BlackBook. “On the other hand, with new vehicle supply/inventory improving in the second half of the year, together with increased incentives, the reduced pressure from the new market will allow used wholesale prices to decline. This decline will be somewhat moderated by a reduction of lease returns in Q3 and Q4.’
New Vehicle Prices
Conversely, as used car prices decrease, new car prices continue their upward climb.
The average sales price of a new car in December was $49,507, according to Kelly Blue Book (KBK). That broke the record of $48,094 set in November.
With an increased supply of new cars coming on the market, the hike in prices might seem counterintuitive. However, the five percent jump is attributed to buyers going for luxury models.
That is due in part to the fact that manufacturers are producing more high-end vehicles than economy models.
High-interest rates are driving manufacturers to emphasize luxury brands, according to KBK. The rationale is that, with elevated interest rates, more wealthy buyers with good credit can afford a new car than economy car buyers.
New car prices are expected to remain high. Although JP Morgan sees a five percent drop over the course of the year.
Ownership Costs Rise
Whether you buy a used, or new car, the costs of maintaining, repairing, and insuring a vehicle continue to increase.
Insurance rates jumped nine percent in 2022 to an average of $1,777, according to online broker Insurify. Another seven percent increase to $1,895 is forecast for this year.
In addition, maintenance and repair fees are also rising. According to AAA, it cost $10,728 last year to own and maintain a car. That works out to $894 a month. Compared to 2021, the annual cost of car ownership rose by over $1,000, and the monthly cost increased by $100.
AAA includes loan interest, registration fees, fuel, maintenance, and insurance in those figures.
Repair costs are also escalating. A report by CCC Intelligent Solutions, Inc. found that the rise in replacement parts accounted for more than half of the increase in repair costs over the past five years.
Another factor in rising repair costs, according to the CCC study, is an industry-wide labor shortage. That has led to an increase in wages.
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Max K. Erkiletian began writing for newspapers while still in high school. He went on to become an award-winning journalist and co-founder of the print magazine Free Bird. He has written for a wide range of regional and national publications as well as many on-line publications. That has afforded him the opportunity to interview a variety of prominent figures from former Chairman of the Federal Reserve Bank Paul Volker to Blues musicians Muddy Waters and B. B. King. Max lives in Springfield, MO with his wife Karen and their cat – Pudge. He spends as much time as possible with his kids, grandchildren, and great-grandchildren.
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