Covid Driven Causes of Increasing New and Used Car Prices

Last summer we wrote about used car prices bucking historical trends and holding steady, and even increasing, during the traditional summer pricing downturn. Now, with an entire year’s worth of data available, an even larger Covid-driven trend is being revealed regarding car prices for both the used and new markets.

First, manufacturers began to stop making as many lower profit smaller cars, focusing instead on higher margin trucks and SUVs. This pushed shoppers in that segment to the used market, as their options narrowed, increasing demand.

Then Covid hit, forcing factory shutdowns worldwide, limiting availability of new product (3.3 million fewer units in the US alone manufactured in 2020), reducing new car sales and trade-ins and creating further upward pressure on both new and used vehicle prices.

Add in that the rental car industry, normally a steady source of vehicles for the used market, slowed their fleet replacement due to the travel industry’s woes. Corporate fleet buyers restrained their replacement cycles as well.

The net result of all this is that the average new car increased by 6% in 2020, while the average used car price increased by an astonishing 14%, about 10 times the rate of inflation.

How did this happen? Basic economics. Too few cars were (are) available, in both the new and used car markets, and analysts predict that this situation will persist for the foreseeable future.

This is yet another “new normal” for us to get used to.

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