By on July 9, 2021

Mikbiz/Shutterstock.com

I touched on it in the newsier post about used-car prices down below, but in normal times, scribes like us sometimes advise our family and friends who are car shopping to buy used, because a lightly used car can be in like-new condition and cost significantly less. And someone else has taken the initial huge depreciation hit.

These are not normal times.

If someone came to me right now and said they wanted to buy a car, I’d advise them to wait. Let inventories recover from the supply tightness caused by the semiconductor chip shortage. And if they were unable or unwilling to wait, I’d tell them to consider buying new. Especially, of course, if they wanted any of the 16 models that are averaging higher prices used than new that we discussed earlier today.

*To be clear, we’re talking mostly about mainstream metal used for daily driving. This discussion doesn’t apply to classic and/or collector’s cars, used cars more than a few years old, or late-model cars that are desired by enthusiasts (especially hard-to-find ones). Those types of vehicles aren’t part of this discussion for obvious reasons.

And if my hypothetical acquaintance insisted on buying used, I’d tell them they’re crazy (unless, of course, they couldn’t wait to get a car). Even if the car they’re targeting is generally cheaper used.

It’s not just about the cost of new versus used. The constricted supply of new cars is driving the price of used cars up, even if that price doesn’t cross the threshold of what a new car stickers for. Simply put, used cars cost more than they normally would due to temporary market conditions.

Analysts say that the market should return to normal within the next year or so, as the pandemic (hopefully) continues to recede, the chip shortage eases, and other production problems get solved. The number of new-car sales could get back to 16 or 17 million units per year again — that’s where it was not just before COVID, but also way back in the day before the Great Recession hits.

One doesn’t need to be an economist to understand that if that forecast holds true, there will be plenty of new cars that soon become used cars. Thus increasing supply. Not only that, but those who have older cars might finally buy new ones, further increasing supply. Yes, it’s true that older used cars can’t be directly compared to ones that are under three or five years old — the older ones will have more wear, higher mileages, they’ll be more outdated in terms of features, they’ll be out of factory warranty, they will be too old to be certified pre-owned, yadda yadda yadda — but since not every used-car buyer is looking for something of recent vintage, the increased supply could still drag down prices across the board.

Look, we all love new cars around here. Many of us also love slightly used cars. But right now seems like a terrible time to buy.

The good news is that the market should improve, from the buyer’s perspective, soon enough. Patience, in this case, is likely to be rewarded.

[Image: Mikbiz/Shutterstock.com]

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37 Comments on “You Would Be Crazy to Buy a Used Car Right Now...”


  • avatar
    SCE to AUX

    When you decide to trade in two years, nobody will care that you paid too much today. I suspect many of today’s buyers will end up rolling their trade-in gap into new car loans in couple years.

    Same with houses. For entertainment, I get sporadic realtor.com updates on a specific house search filter in a distant city. They send me a few every week. Recently, some of them actually went *up* in price after being listed, rather than the price reduction one typically sees. One of the houses jumped 11% after listing for a week.

    Anyone buying at these prices should commit to a long relationship.

  • avatar
    FreedMike

    Agreed 100% on the used car market. Should you buy new? I’d say that depends. I bought about a month ago, and got a very decent deal on the car I bought and the car I traded in.

    Secret to my (modest) success? Simple: I didn’t buy a truck or a CUV, and I picked out a sport sedan that been on the lot a few months because sport sedans aren’t jacked up an inch and festooned with fake-macho plastic cladding.

    In other words, don’t buy a truck or a goddam*ed Karen-mobile, and you may get a decent deal.

  • avatar
    ToolGuy

    For the majority of current new vehicles on sale in 2021, I have no interest in ever owning them – as new or used. Factor *that* into your analysis.

    • 0 avatar
      ToolGuy

      Recently installed a new engine on an old Snapper rear-engine riding mower (customer loves it and wanted to save it). [Crappy Tecumseh engine shattered its rod and cracked the engine housing; new Briggs & Stratton engine starts more quickly/easily than any mower engine I’ve ever seen.]

      Then did some work (worn steering components and starter drive) on a newer-but-still-kind-of-old John Deere riding mower.

      The Snapper is built like a tank – thick-gauge steel everywhere. The Deere is a sea of plastic.

      (Somehow this reminded me of modern automobiles.)

  • avatar
    JMII

    Normally a vehicle depreciates about 20-30% during the first year of ownership. Currently used car prices in general are UP 20-30%. So yeah buying a used car now is beyond stupid since your basically paying new car prices… but sometimes you gotta-have-it.

    The good news is your trade-in will get you maximum cash, well provided you can find a new car at all. Due to the supplier and chip shortages stock at your local dealer maybe thin especially for hot new models.

    • 0 avatar
      jmo2

      30%? When has that ever been true? You might see 30% off MSRP for a vehicle that was loaded with incentives and actually sold new for 20% less than MSRP.

      • 0 avatar
        ToolGuy

        “30%? When has that ever been true?”

        One-year residual values vary *widely* by segment. Some vehicles are truly scary. Since ALG charges for their data, it is relatively difficult to find a comprehensive set of numbers just lying around. [Back when I had a printed ALG book at my desk (late 90’s), I seem to remember Really Bad 12-month and 36-month residual figures for the Geo Metro, for example.]

        Here are some ‘extreme’ cases from several years back (see the table):
        https://www.greencarreports.com/news/1098663_used-electric-cars-which-hold-their-value-best-which-is-worst

        [For the uninitiated: Toyota RAV4 one-year-old “Retention” of 71.3% means it lost 28.7% of its value, right in line with what JMII said. Ford Focus Electric figure of 46.5% means it lost 53.5% of its value in the first year.]

        • 0 avatar
          jmo2

          Retention based on MSRP? And is that the retail used price or the trade in value?

        • 0 avatar
          28-Cars-Later

          I have studied this in the past, typically in cars by year two we saw on average about 70% off of declared MSRP with Lexus being and outlier in the low 80s and Mercedes in some cases being in the 80s to high 80s depending on model (SL, SLKs). Once initial warranty period ran out on the Teutonic iron, a healthy drop ensured, while domestic cars would hit 50-low 60s by year five assuming clean condition/avg miles. Toyonda was always at least 10% higher.
          I never studied trucks but I imagine at least since 2014 those numbers are at least 10% higher.

          Now on Planet Plandemic probably all newish stuff is now in the 80s, wholesale, which explains why the retail spread between new and used is so thin. If your financial life is less than pristine, they are really putting the screws to you with the new-used because you don’t qualify for brand new etc. This is a domino effect down to I’m barely holding it together (650-580) and total financial disaster buyer classes (<580). Trust the plan[demic].

        • 0 avatar
          RHD

          The VW Golf Harlequin lost more than 30% of its value BEFORE leaving the dealer’s lot.

  • avatar
    MGS1995

    Like FreedMike, I think I hit the perfect storm. I traded a 7 year old Camry for a new Avalon Hybrid. The Avalon had been sitting on the lot since February and had a bunch of cash on the hood. It had only 3 miles on the odometer when I got in it. In spite of being a sedan, the Camry is very popular so I got a really good trade-in value. So, not a good time to buy used but if you’re looking at an unloved new model there are deals to be had.

  • avatar
    dobrst

    I have been paying attention to used prices for a particular year/model in the Los Angeles area and for a while the prices seemed to be going crazy but it sure seems they are coming back down pretty quickly now. I didn’t make a spreadsheet and track the exact prices of specific VINs over time – so maybe I am fooling myself.

    A bunch of 2019s (my target MY) have started showing up off lease and the prices seem pretty much back to normal. Most of the search sites I use have a lot of the vehicles in my criteria listed as ‘good’ or ‘excellent’ deals – something they were NOT doing in June. If I’m being fooled, then their software is getting tricked as well. Has the bubble burst or am I just high?

  • avatar
    eggsalad

    I was in a (stupidly? self-created) bind in February. I paid 35% of MSRP. For a 19 year old pickup. Talk about a shallow depreciation curve.

  • avatar

    That is the reply to SCE to AUX regarding to a long relationship.

    I am committed to a long relationship and during 10 years of ownership price of my house more than doubled. And it is in Bay Area the place many Americans abandon in hurry.

  • avatar
    dwford

    A friend bought a 2017 Chevy Bolt in March for $13,900 (and this wasn’t even the cheapest similar Bolt around). The same car at the same dealer is now going for $18,900. Amazing.

  • avatar
    jmo2

    “ And someone else has taken the initial huge depreciation hit.”

    I can’t say that I’ve ever seen a huge deprecation hit. I have seen a decent gap between MSRP and what people actually pay. But then someone will say, “I saved $5k buying a 2 year old Camry.” Ok. But Toyota is offering $2,500 in incentives and the dealer was will to knock another grad off so you really only saved $1,500. And considering it’s got 20k miles and 2 years less warranty – it doesn’t make any sense financially.

    • 0 avatar
      vvk

      I don’t know about a Camry, not really Camry material. But how about a nice 2-year-old 6-speed M-Sport 550i with low miles at less than 50% MSRP?

      • 0 avatar
        jmo

        That would depend on the price you’d actually pay for a new one. Saying you’re saving X% of MSRP is like a mattress store doubling prices and offering a constant 50% sale. And idiots think, “Wow! 50% off what a deal!” Um…they have never actually sold one for full price. It’s just a scam to make you think you’re getting a deal.

  • avatar
    SaulTigh

    Car salesmen are very low on the list of people that I feel should have a lot of power, and right now they have far too much power, what with “normal, everyday cars” going for sticker and quite a few vehicles with “market adjustments.” I’ll wait.

  • avatar
    Jeff S

    I would put car sales people in the same category as politicians.

  • avatar
    28-Cars-Later

    The start of Q4 would put things a little over a year since this “shortage” started, if by mid Q4 there are not signs the “shortage” has been abated expect it to continue through all of 2022 because it is being made to happen deliberately.

  • avatar
    ayliniemi

    Yeah been looking at this Ford Ranger with under 10 miles on it getting dusty on the lot. $40,xxx We looked at it about 2 weeks ago. Not exactly flying off the lot? Sales man sent us a picture of it in the E-mail. I’m wondering when these dealers are going to crack. Did you hear about that Mirage they marked up 6k? LOL

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