How much should you pay for a used car? Most shoppers would answer that they should pay much less than what the car originally cost, but that’s not the case.
Prices are surging in response to one of the most normal aspects of selling products. When the supply is low and the demand is high, prices increase. They are also surging due to the threat of tariffs in the new car market. These two items are cause for concern in terms of used car prices, which have surged to a high of $29,000 on average.
2021 was nothing
The ripple effect of the COVID-19 pandemic caused dealers to have an extremely low level of inventory during 2021. This meant increased prices for used vehicles, which were being sold nearly as soon as they hit the dealership lots. The May inventory showed a 43-day supply of vehicles, which is low, but not as low as the start of April which showed a 40.5-day supply. This means used car dealers can sell pre-owned vehicles for much ither prices than you might expect to pay.
Prices fell in April, but likely won’t for June
There was a minor change in used car prices in April compared to March. The price dropped 0.5% from the earlier month, but don’t expect that to remain. With tighter inventory constraints, prices should increase over the next couple of months. Toss in the threat of tariffs, which continue to loom in the automotive world, and you’ve got a recipe for higher used car prices and much lower inventory. Even at higher prices, used cars can still be more affordable than the potential 25% increase in the price of a new vehicle due to the nonsensical tariffs.
Why are inventory figures so low?
With the threat of tariffs, some consumers rushed to dealerships to buy vehicles. This meant a rush on new and used models, causing inventory levels to decline. As this inventory has declined, prices have gone up, as they always do. If and when tariffs are placed on the automotive industry, used vehicle prices will likely soar, but not as much as new vehicle prices, causing serious issues for some consumers. Those who haven’t bought a new or used vehicle already might be stuck paying much higher prices or waiting until the tariffs are removed.
Each automaker handles things differently
Not all new vehicles will face a 25% increase in price due to tariffs. The more aspects of a vehicle that are built in America, the less tariffs will impact that vehicle. That said, just because a vehicle wears a Ford, GM, or Stellantis badge doesn’t mean it’s made in the USA, and it doesn’t mean it will be tariff-proof. In fact, many foreign-branded vehicles have more parts made in America than some from the Detroit Big Three. This can make things confusing for some shoppers.
If you’re shopping for your next vehicle, it’s a good idea to have several models on your list from various automakers. This will help you find the best deal on a vehicle that might not be as impacted by tariffs as others.
Are used cars tariff-proof?
Technically, used cars are not impacted by tariffs, at least not directly. That said, a surge in sales causes used car prices to increase, which means they are indirectly impacted by tariffs. The surge in sales decreases inventory and caused the supply and demand balance to shift toward higher prices. This is directly caused by the threatened tariffs, which haven’t been as high as expected yet but could increase at any time that the current administration chooses, which makes them unpredictable, causing uncertainty in the automotive industry.
Interest rates remain high
Another factor, which doesn’t seem to be as important as prices and tariffs, is interest rates. When interest rates drop, many consumers flock to dealers to buy vehicles, but some will wait to see if these rates will drop. With the threat of higher new car prices through the tariffs, many consumers chose to ignore interest rates in the interest of buying a new vehicle. The same goes for used cars. This means many consumers are paying more each month with their new loans than they would have if interest rates were lower than they have been.
Are used car prices going to keep you from buying your next vehicle during the next few months? If you’re in the market for your next ride, now could be the right time to buy, thanks to the uncertainty of looming tariffs and continued inventory declines.
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