Used and new car prices near record highs and the American fleet gets older

June 17, 2021

That old car is worth money. This catch phrase from a long-running TV commercial for Victory Auto Wreckers that ran in the '80s has never been more accurate. Used car prices are nearing record highs, with some owners selling their gently used cars for more than they paid for them new. At the same time, the average age of cars on American roadways is 12.1 years, according to an IHS Markit report released this week.

“2020 was a radical departure from the norm and challenged assumptions about how vehicle owners use their vehicles," Todd Campau, associate director of Aftermarket Solutions at IHS Markit, said in a statement. 

At the same time, automakers are reporting record sales months for new cars as the economy and some Americans emerge from the pandemic flush with cash and pent-up demand. These three factors have two things in common: Constrained supply is limiting the availability of new cars and this rare confluence won't last long. 

The average price of used cars and trucks has risen 30% over the past year, according to the Bureau of Labor Statistics, but that number could be as high as 48%, The Economist reported on Tuesday. At the same time, a global microchip shortage is causing supply-chain delays that are limiting the number of new cars coming to market. The number of vehicles delayed to line shutdowns or slowdowns caused by chip shortages has risen to 3.6 million vehicles globally, according to Automotive News

On social media, shoppers post images of dealers charging "limited availability" or "market adjustments" markups that can exceed $10,000 above sticker price.

This and already high transaction prices topping $40,000 for the average new car has prompted shoppers to scour the used-car market. The red-hot used-car market shows no signs of slowing down, either. 

"In 2021, used prices are expected to remain near historic levels as pandemic-related macro-economic headwinds remain in place," J.D. Power reported back in April. Between April and May alone, used car prices rose 5%. 

The silver lining for owners who have held onto their cars is the cars are worth more now than they were last year, or, the last several years. The average age of vehicles on American roads has risen to 12.1 years old, and those older cars should help supply some of the surging demand. People held onto their cars during the uncertainty caused by the pandemic, inadvertently contributing to the supply shortage. Now they can cash in.

“The microchip shortage and subsequent inventory levels for new vehicles have created a situation in which used vehicle values have gotten extremely high, so a vehicle owner who may have kept a vehicle in the garage that they were not using in 2020, now instead may take advantage of the opportunity to either reduce the number of vehicles in their garage, or trade up to something newer while the demand and value is extremely high on their used vehicle,” Campau said.

As more people trade in or sell their older vehicles for newer ones, the average age of cars on U.S. roadways will decrease and the price of used cars should fall as well. The question, like so much else during the pandemic, is when. 

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