Used-Car Prices Are Falling, but Buying Is Still a Challenge
Used-Car Prices Are Falling, but Buying Is Still a Challenge
As prices ease from all-time highs, higher interest rates are ramping up monthly payments
After a historic used car price spike throughout much of 2021, prices have begun to come down. Although they haven’t yet deflated to levels that would fall into deal territory, a recent drop of more than 3 percent may offer hope to used-car shoppers, especially for those paying with cash. Rising interest rates will likely negate the drop in prices for buyers who have to finance, meaning that despite the price drop, they could still end up paying more over the life of the loan.
That said, the luxury of waiting for a sunnier economic outlook isn’t available to everyone. If you need to buy a used car now, Consumer Reports can tell you how to make the best of the current situation with expert advice and market insights from industry insiders.
In good times and bad, Consumer Reports members can search our Used Car Marketplace for vehicles for sale in their area, sorting by the factors that matter most. The listings include CR reliability and owner satisfaction ratings, and there’s a free Carfax report for most of the vehicles. Members can also access rating and information on used vehicles going as far back as 20 years.
Why Were Used Car Prices So High to Begin With?
A lot of it comes down to the global microchip shortage and other supply-chain disruptions that have plagued many industries since the dawn of the pandemic. Chips control everything in a car from infotainment screens to window motors. It’s the main culprit behind the current tightness in the new- and used-car markets, multiple experts tell CR, and it has also affected the availability of other consumer products.
Some analysts say the shortage may be easing, but automakers still have lower-than-normal production targets for the rest of 2022. What does that mean for consumers? Fewer new cars to choose from.
“There are also reports of supply disruptions for a number of other components, including airbags and even the insulation mats that go under the hoods of vehicles,” says Sam Abuelsamid, an analyst with Guidehouse Insights, an auto industry analysis firm. “These sorts of disruptions are caused by a variety of challenges, including shipping delays and ongoing disruptions in Asia, as well as labor shortages that are also expected to last into 2023.”
According to the Consumer Price Index report from November, used-car prices fell over 3 percent from a year ago but are still about 50 percent higher than they were in February 2020, before pandemic-related disruptions catapulted the economy into turmoil. Quite simply, new-car shortages continue to put pressure on the used market.
The results of a nationally representative car-buying survey conducted by Consumer Reports in the spring of 2022 indicate that higher new- and used-car prices have changed people’s buying habits significantly. Fewer people are looking for used cars, more are looking for new cars than in 2019, and more are considering buying a car in a higher price range.
“Consumers realize that used cars are not the great deal they once were, particularly as higher interest rates can actually make them more expensive for those who have to finance them,” says Jake Fisher, senior director of CR’s Auto Test Center.
If you follow news about the used-car business, you may have noticed that wholesale prices—the price a dealer pays—have fallen markedly since midyear. But those decreases have yet to materialize on used-car retail lots, where consumers are seeing a much slower decline, says Alain Nana-Sinkam, senior vice president for business development at TrueCar, a firm that tracks the automotive industry, and a CR partner. The long and the short of it, he says, is that the prices you’re seeing used-car dealers charge now are based on the wholesale prices they paid for them, often a month or more ago.
Pat Ryan, CEO of CoPilot, an app that helps car buyers keep track of prices and find the best deals, says that despite lower prices, used cars are no more affordable now than they were at the peak of the price hikes because of higher interest rates. But with prices falling more rapidly on older models, you’re more likely to find a deal on one than you would on a 1- to 3-year-old car. Demand for used vehicles on the newer end of the spectrum has increased in recent months, he says.
“Given that used-car prices still have a long way to fall in nominal terms, our best advice—whether you’re taking out a loan, trading in, or buying with cash—is to continue to hold off on buying a used car if you can,” he says.
Source consumerreports.org