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A Pandemic Sticker Shock: Used-Car Prices Are Through The Roof

Oct 28, 2020
Originally published on November 9, 2020 9:21 am

Aaron Springer of Odenton, Md., wasn't looking to sell his 2014 Volkswagen Jetta SportWagen, which he bought used a couple of years ago.

"I love this car," he says.

But Springer heard the used-car market was hot, so he decided he might as well check. To his astonishment, used-car site Carvana offered him $1,500 more than he paid for the vehicle in 2018.

"I mean, it's just too good of a price to not sell it," he says.

Add used-car values to the list of things turned topsy-turvy in 2020. Springer's experience is exceptional, but it's also a sign of the times: Prices for used cars, trucks and SUVs rose remarkably all summer long as demand far outstripped supply.

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According to Cox Automotive, as of September, wholesale used-vehicle values were up 15% compared with last year. And listings on CarGurus are now averaging $22,470, which is over $1,800 more than at the start of 2020.

The rate of growth appears to have calmed down, but prices remain remarkably high.

"Anybody who tracks them ... would be shocked, I think. Almost flabbergasted," says Ivan Drury, the senior director of insights at Edmunds, the automotive information company.

Drury, like Springer, felt the benefit firsthand. He bought two cars last year and sold them both a couple of months ago.

He broke even on one vehicle and made money off the other, which Drury calls "remarkable, to say the least."

This spring, when the coronavirus pandemic started to spread, auto plants temporarily shut down operations for safety. That has created a shortage of new-car inventory, pushing more people onto the used-car market.

Meanwhile, plenty of people are looking for cars. Partly that's because of concerns over the safety of carpooling or riding public transit (although transit systems are taking steps to promote safety).

There was a policy-based boost in demand as well, as buyers put their coronavirus relief checks toward new vehicles.

"People were able to come up with a little bit more money down," says used-car salesman Orby Galarza of Harrisonburg, Va., who saw a direct connection between relief checks and sales.

In short, the pandemic reduced the supply of cars at the same time it increased demand for them. It's Econ 101 — the result was prices went up. And up. And up.

For those who have good-condition cars to sell or trade in, this is a big boost. Some drivers are putting that extra money toward even pricier brand-new cars.

Drivers who lease vehicles can also benefit from these rising prices if their leases are ending soon. The buyout price that was set at the start of the lease, based on projected value, might now be thousands of dollars less than the vehicle's actual value.

That means drivers can buy out their leases, then turn around to trade that vehicle in or sell it for cash — and immediately turn a tidy profit.

But for buyers looking for affordable used vehicles, the spiking prices are bad news, and the shortage of inventory can lead to frustration.

It's another sign of how the pandemic and the economic upheaval it created are hitting the haves and the have-nots very differently.

Some drivers are stuck with older, less reliable vehicles that they are driving into the ground, waiting for the market to calm down enough so that they can afford to buy a replacement. Others don't have that choice.

Danielle Jennings of Baltimore needed a new vehicle this summer after her 17-year-old car finally gave up the ghost. But she scoured the used-car market for a reliable vehicle in her price range, with no luck.

"I just wanted to be able to get to work and be able to take care of my family," she says. "My back was against the wall."

Jennings, much to her relief, wound up getting a 2013 Chrysler 200 through a nonprofit called Vehicles for Change, which takes donated cars and gives them at a discount to people who need transportation.

Vehicles for Change says it has seen an increase in need because of the pandemic, but because the program requires participants to have a job, it's also finding that many applicants are disqualified.

Vehicle affordability is not a new issue. Even if car prices were dropping instead of rising, many low-income Americans would still struggle with transportation costs.

But this surprising spike in prices certainly isn't helping would-be car buyers on tight budgets. And until prices return to normal, bargains will be few and far between.

Copyright 2020 NPR. To see more, visit https://www.npr.org.

DAVID GREENE, HOST:

Used car prices have been going up over the past few months. This is one side effect of a pandemic. As you can imagine, this has been a welcomed surprise to people looking to sell cars but challenging for anyone in the market for an affordable car. Here's NPR's Camila Domonoske.

CAMILA DOMONOSKE, BYLINE: It's an iron-clad law of the used-car market - as cars get older, they get less valuable, right? Not so fast. Add used-car prices to the list of things turned topsy-turvy in 2020.

IVAN DRURY: Anybody who tracks them or anybody who owns a vehicle themself has looked, they would be shocked, I think, almost flabbergasted, in fact.

DOMONOSKE: Ivan Drury is the senior director of insights at automotive data company Edmunds. He's been watching used-car prices soar. And he experienced it firsthand. He bought two cars last year and sold them both a couple of months ago.

DRURY: And actually made out on one and broke even on the other, which was remarkable, to say the least, and defies any normal depreciation schedule or anything.

DOMONOSKE: So what the heck is happening? Well, car plants shut down in the spring. That meant a shortage of new cars, pushing more people into the used market. Meanwhile, plenty of people want cars, especially because of concerns about spreading the virus on public transit or shared rides. Low supply, high demand - it's Econ 101. Prices have gone up and up and up. Aaron Springer of Odenton, Md., is selling a 2014 Volkswagen Jetta SportWagen. He bought it about a year and a half ago, then recently heard the market had gotten hot.

AARON SPRINGER: I decided, you know, I'm not really looking to sell it. I love this car. Well, let me go see what exactly they're paying. And it was big.

DOMONOSKE: Used-car site Caravana offered him $1,500 more than he paid for it in 2018.

SPRINGER: I mean, it's just too good of a price to not sell it.

DOMONOSKE: And drivers whose leases are ending now might also make a tidy profit. The buyout price that was set three years ago, it could be thousands of dollars under today's market value. So drivers can buy out their leases and immediately profit off a trade-in or sale. This wild increase in used-car prices is good news for sellers. And it's tough on car buyers, who have been having a hard time finding affordable options during this pandemic.

DANIELLE JENNINGS: I just wanted to be able to get to work and be able to, you know, take care of my family.

DOMONOSKE: Danielle Jennings lives in Baltimore. She had just started a new job this summer when her 17-year-old car died.

JENNINGS: It just completely, like, threw in the rag on me.

DOMONOSKE: She looked at the used-car market.

JENNINGS: Yes, I did. Oh, my God. Yes, I did.

DOMONOSKE: But with no luck.

JENNINGS: My back was against the wall to come up with a down payment that would satisfy the lender, for me to be able to get a car that I can afford to maintain and my everyday monthly bills.

DOMONOSKE: Jennings wound up getting a 2013 Chrysler 200 through a non-profit called Vehicles for Change. It takes donated cars and gives them at a discount to people who need transportation. Vehicles for Change says it's seen an increase in requests for help since the pandemic started. But it has a work requirement. And with so many people unemployed, there are a lot of people it can't help. Vehicle affordability is not a new issue. But the spike in used-car prices is just another example of how the pandemic economy is hitting the haves and have-nots really differently.

Camila Domonoske, NPR News.

(SOUNDBITE OF MENAHAN STREET BAND'S "THREE FACES") Transcript provided by NPR, Copyright NPR.