Used Car Prices Are Going Up But Here's How to Still Buy

When friends ask me “are used car prices going up”  I drop this anecdote:  I just watched a 2017 Ford Diesel with 110k miles sell for $57,000… at wholesale auction.

It’s hard typing this with my jaw still on the floor.

But there is still value out there.  If you are unsure how to navigate this used car market with car prices way up, we’ll help.

In this post, I’ll cover:

• The amount of used car price increase
• Why used vehicle prices are increasing
• How you can still afford a used car without putting a second on your home.

Used car pricing trending up.  Way up.

All kinds of things go up and down, often with misguided rationale.  But this change in the average used vehicle price is real and unprecedented.

Wholesale Used Car Prices Skyrocket

We started April 2021 with 42 cars for sale.  We ended with 8 after we took 32 to auction.  We guessed that dealers would pay more than customers, and we were right.  For example, our 2014 GMC Sierra 2wd with 107k miles priced at $21,500 since October.  We had one buyer in March tell us “I’ll give you $19,500 and not a penny more!”

We sent it to an auction where another dealer paid… $25,000.

The data backs our experience.  The largest auction in the US publishes the used car value index based on used car wholesale prices.  Without that context, you might think this is a chart for GameStop.

Average Used Car Price Trends Also Surge

Predictably, the retail market followed suit.  Here’s the US government’s numbers.

And according to Kelly Blue Book and Edmunds pricing, trucks and SUVs are leading the way.

Why Are Used Car Prices So High? Spoiler Alert: Car Inventory and Buyers

Several factors conspired to make this the hottest used car market in recent memory.

Lack of New Car Inventory Hurts Used Vehicle Market

Covid-19 pandemic disrupted supply chains all over the world, particularly semiconductors.  Computers comprise almost 40% of new vehicle parts costs.

Most new car dealerships' inventory is down 60%.  They’ve frozen manufacturer incentives and raised average prices, especially for pickup trucks.

With new car buyers fighting to get vehicles, their trade-ins are sidelined too.  The used car market depends on trade-ins -- new car dealers send most trades to dealer auctions.

And lenders halted most repossessions over the past year further constraining supply.

Buyers Have Money and Want Something New

The coronavirus pandemic forced most Americans to save money.  For instance, most didn’t take vacations or eat out, and if they needed a new car, they tended to put it off.  That extra year also increased their car’s equity.  Combine that savings with tax refund season and stimulus checks and down payments abound.

How to buy a used car with prices going up

All is not lost!  Here are the best ways to move forward in this crazy vehicle sales market.

Sell Your Car

Dealers are asking a fortune for their cars.  The good news is your car is also worth a fortune.

Remember the shady dealer commercials of the past?

“Bring in anything, we’ll give you $4,000 guaranteed towards a new car!”  Obviously the dealership can make that offer because their prices are similarly inflated.  (I always wanted to run a satirical “1 billion dollar guaranteed trade!”  Of course, our cars would be priced at $1,000,015,000. But I digress...)

You’ll pay more for their car, they’ll pay more for your car.  It’s a wash.  And even better if you sell retail instead of trading it in.  Focus on the difference between your car’s sales price and your new car’s purchase price and everything is fine.

And if you want to get a little more strategic look at the chart above.  Are you ok selling your truck or SUV for a minivan or wagon?  You’ll be ahead of the game.

Buy a Higher Mileage Used Vehicle

The used car wholesale graph (above) shows used cars are more valuable.  That rise largely correlates with increased reliability.  The cars of today are more reliable than 20 years ago, so it may be time to rethink that “I’d never buy a car with 100,000 miles” mantra.  Today’s 100k mile car is much different than the 100k 1990s model.

Because new car buyers typically don’t have high mileage trades, the secondary market for older and higher mileage isn’t as constrained.

Buy From Us

Ok, I’m a little tongue-n-cheek, but no dealership is better positioned to provide value in this climate than us.  We operate with minimal overhead and are experienced in untapped markets, like insurance theft recoveries.  Our customer value is evaluating vehicles honestly and transparently, not cooking up the next GAP insurance product with 15 people in finance.  This is a great time to pass that value along!

Are Used Car Prices Dropping, Ever?

Yes.  But when?  Most “experts” think we’ll see a cool off by the end of the year, but my gut says it’ll be faster.  There’s no industry with deeper pockets and motivation then semiconductors.  My hunch is the industry will spend its way out sooner than later.

Of course that doesn’t relieve all of the other supply chain disruptions, but it does fix the main one.

Customers often ask me what a good price is for XYZ car.  But there’s no single answer because the used car market is so fragmented and differentiated.  No two used vehicles are the same and customers may value those two vehicles very differently.  As the car industry’s pejorative saying goes, “you only need to find one ass for the seat.”

The truth is if you’re happy paying the price for the value you receive, it’s a good buy.  That’s still happening in today’s market.  Shop accordingly.