Why are used cars so expensive right now?

It's something that you’ve largely taken for granted. You need a car, so you check prices online and then head out to a local new or used dealer to evaluate your pick in person. Or maybe you've upgraded your car-buying experience by going with one of the full-service car delivery companies that have sprouted up over the last few years. After all, they'll deliver your car directly to your door while taking care of all that annoying paperwork.

But for many car buyers in this post-COVID-19 world, a car that they can actually get their hands on is becoming something of a unicorn these days. In fact, some people are buying cars online sight-unseen and without that pivotal test drive. For cars they do find, consumers can expect to pay anywhere from 20 to 50 percent more, especially if the car is rare or in high demand.

What gives? And why are used cars so expensive right now in the U.S.? To answer that question, we'll have to go back to 2020 and the novel coronavirus pandemic.

What do new cars have to do with it?

To understand why used cars are so expensive these days, let's start with what happened last year with the COVID-19 pandemic. While most people were figuring out how they would be able to work from home or help their kids learn through remote schooling initiatives, supply chain disruptions were making it difficult to find certain staples like toilet paper and hand sanitizer, as well as new cars.

That's because new cars require expensive computer chips that are made by only a few global producers. When shutdowns enveloped the world in 2020, those chips and other important items and materials used for finishing vehicles were not only hard to come by but they basically disappeared entirely. And without chips, new cars can't be sold to customers.

When that happened, people stopped buying new cars because, well, there were no new cars to buy. While that may seem like one of those nonsense problems, no supply in the new car market also meant that those who would commonly trade in an older vehicle for that new model stopped doing so -- and within short order what had been a new car problem quickly became a used car problem.

Why are used cars so expensive right now? Unfortunately, it has more to do with the lack of availability of new cars, which are often purchased with the trade-in value of used cars. Without those new cars, the used car market has become hammered with about 50 percent more demand than normal. In a given year, about 40 million used cars are sold, along with about 20 million new cars. But without those new cars to purchase, the used car market has a lot more demand than inventory, and that has pushed up used car prices exponentially over the past 12 to 18 months.

Turning to the used car market

Since more consumers are turning to the used car market to satisfy their needs, it's easy to see why used cars are so expensive right now. Based on the laws of supply and demand, production shutdowns and other challenges for new cars have led to dramatically increased demand for used cars while there's a concurrent drop in supply due to fewer people trading in their old used cars for new ones in the first place. 

While those with limited budgets may balk at the price of both new and used cars in 2021, those with the means to pay more are walking away with great vehicles at super-low interest rates, as long as they're willing to pony up for a more expensive sticker price. For those who are unable to gather the funds required or who do not want to pay inflated prices, there's little that can be done. Sure, there are more alternative forms of travel these days with rideshares, public transportation, ebikes, and scooters, but nothing quite beats having your own vehicle. 

The reality is that the used car market is strained like it never has been before. Some used car dealers are running ads and attempting to buy cars from anyone considering a sale. It's part of the reason why used cars are so expensive right now; prices need to rise to convince owners that selling is a good idea. Many are still trying to avoid public transportation and rideshares due to COVID-19, and a car -- new or used -- allows them to maintain their independence without risking their health.

But if you’re thinking about making a quick buck off of appreciating car values, it's important to realize that once your car is sold, you'll be heading right back into a tough market where buyers have little leverage and prices are seemingly appreciating with each passing day. However, if you don't have a transportation need at the moment or you're thinking about offloading that extra car that you never really drive anyway, selling that vehicle on the used market can earn you an extra few thousand on top of its value.

Where do we go from here?

On average, used cars are about a third to 40 percent more expensive this year over last, and the chip shortage that's keeping supply down and demand high in the new car market shows no signs of waning anytime soon. In fact, some experts and industry analysts predict that used cars will continue to be expensive for the foreseeable future. While many expect things to get back on track by 2022, there are those who believe that it may take until 2023 for the computer chips and other supply chain issues to resolve themselves. The result could be several years of artificially high used car prices as buyers look for their next vehicle on the used market instead of buying new.

All the news about limited supply and high demand is also driving more interest in the used car market, with demand closing in on double what it was last year. That means higher prices, longer waits, and limited opportunities once a vehicle pops up on the market. If you need a car and happen to see something you like, you may want to act quickly before someone else does. Even cars in other states are being scooped up by enterprising dealers and consumers who will pay for the logistics to bring that vehicle home.

The good news is that if you do find the right vehicle, you'll get more for your trade-in, as well as significantly reduced rates if you're looking to finance that new-to-you vehicle. Ten years from now, that could end up saving you money, but it all comes down to finding the right vehicle in the first place. However, if you're ready and interested in getting a fair quote for your used car, which can help you put more money down for your next car, use our free valuation tool to identify the perfect time to buy or sell.