Consumers find smaller selections and higher prices for used cars

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The chip shortage afflicting new cars is now taking a toll on used vehicles

Consumers who have been turned off by higher prices and smaller selections of new cars and trucks are now finding the same situation on the used car lot. The shortage of computer chips that has limited new vehicle production has spurred demand for previously owned vehicles, with supplies falling and prices rising.

Industry sources show that the average price paid for a new vehicle was more than $40,000 in March, and the average paid for a used car or truck hit an all-time high of $25,463 in April. With automakers cutting production because they can’t find enough computer chips, there are fewer new cars in new car showrooms, and dealers aren’t cutting the deals they used to.

At the same time, dealers are struggling to replenish supplies of used cars and trucks. At wholesale auctions, they’re now having to compete with rental car companies that can’t buy enough new cars and are replenishing their fleets with used ones.

The COVID-19 effect

You can blame the whole issue on the coronavirus (COVID-19) pandemic. When the economy shut down a year ago, carmakers canceled their computer chip orders. Because of the long lead-time necessary to produce semiconductors, chipmakers haven’t been able to catch up.

The pandemic also caused Hertz and other rental car companies to sell off vehicles in the face of plunging demand. But now that the economy is reopening, people are traveling again.

“These rental-car companies sold off large chunks of their fleet in order to right-size for rental demand,” David Paris, senior manager at J.D. Power, told the public radio program Marketplace.

Consumers don’t appear to be balking at these higher prices. With stimulus money flowing freely, many families are feeling flush. The online automotive marketplace TrueCar reports that used car and truck sales rose to 3.4 million units in April, a 58% increase year-over-year. That added to the used car squeeze because dealers started the month with declining inventories.

How consumers might benefit

While the situation might appear to pose challenges, Kelley Blue Book (KBB) suggests that there is a way consumers might turn lemons into lemonade. Assuming they can find a new vehicle they like, their trade-in vehicle has never been worth more.

"There has never been a much better time to sell or trade in your car than right now during this strong seller's market," said Matt DeLorenzo, senior managing editor for KBB. "Dealerships are seeking more used-car inventory, and prices are reaching sky high. If you're in a position to sell, it's a great time to command top dollar for your old car.”

While there may be fewer dealer incentives attached to a new car purchase, DeLerenzo says the increased value of your used car will help take some of the sting out of a potentially higher price point. 

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