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I'm wanting to buy a car in the next few years. Covid caused used car prices to jump, and new car prices followed along. Prices have started to come back down, but my understanding is that they're still higher than normal.

Is there an easy way to know when car prices have gotten back to normal? Is there an easy way to know how much more I would be paying than I would be if things were normal? Are there estimates on how long it will be before prices get back to normal?

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  • Define "normal". It sounds like you expect car prices to return to their pre-Covid level. That probably won't happen, but separating any "temporary" effects from "regular" inflation may prove difficult, if not impossible.
    – chepner
    Aug 6, 2021 at 16:49
  • @chepner I guess I would define "normal" to include inflation. I suppose I'm looking for something along the lines of "new cars 5% more than history suggests they should be; used cars 10%". Separating "temporary" from "inflation" would be difficult, but I would settle for "inflation is 1-2 of that percentage".
    – Teepeemm
    Aug 6, 2021 at 16:57
  • There's little reason to believe prices would drop, unless new cars don't sell at all. (And I don't mean to consumers, but to the dealers. If you see a car on a lot, the manufacturer has already successfully sold the car. It's now the dealer's problem to sell the car to a consumer without incurring a loss.)
    – chepner
    Aug 6, 2021 at 17:09
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    "Covid caused used car prices to jump, and new car prices followed along" where did you get this information?
    – Fattie
    Aug 6, 2021 at 20:20
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    @Fattie npr.org/2021/07/09/1014834686/… and consumerreports.org/buying-a-car/when-to-buy-a-used-car (and many others) for used cars, assuming usual economic forces for new cars.
    – Teepeemm
    Aug 6, 2021 at 20:25

3 Answers 3

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High and low prices can only be seen looking into the past with a certain distance. When you know that X has been a good time to buy it is already over. And any good estimate is likely to fail because people might act on it and change the situation.

Therefore do not focus on timing, focus on whether you need a car and what type. The right time to buy is when you need one. Cars are a depreciating asset and therefore - to be honest - not an asset at all but a liability. The upkeep for a car is considerable and buying a car that you do not really need will likely cost you more than fluctuations in price. Also it matters a lot more what you buy than when you buy.

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Several factors are driving the recent increase in new and used cars:

  1. fewer used cars are available since car rental companies like Hertz sold off large portions of their fleet during the pandemic
  2. fewer new cars due to COVID-induced shutdowns and supply-chain issues, e.g. shortage of computer chips and shipping capacity

The lack of used cars further drives up the cost of used cars for people who need one now.

It is widely believed that these issues are transitory and will be resolved in the next few months/years.

Assuming you're going to buy a car because you need one, it's kind of a moot point since you won't have a choice but to buy the cars that are available at the prevailing prices.

To gauge whether you're getting a good deal, you could check the Kelly Blue Book value or look at the ratio of the price of used vs new cars over time.

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  • To focus on your last paragraph: if Kelly Blue Book reflects current used car values, then it would also reflect the currently inflated prices. Is there an easy way to look at the ratio of used vs new cars over time?
    – Teepeemm
    Aug 7, 2021 at 1:47
  • If rental car companies sold off large portions of their fleets, wouldn’t that result in more used cars available on the market, not fewer? Aug 9, 2021 at 0:12
  • @BenMiller-RememberMonica not necessarily. The time to buy cars at firesale prices was in Q2/Q3 2020 but those cars have since been sold. Rental car companies usually provide a steady stream of 3-4 year-old cars as their fleets turn over, which isn't the case right now. Similarly, the pandemic has impacted leasing activities.
    – 0xFEE1DEAD
    Aug 9, 2021 at 1:39
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The Bureau of Labor Statistics computes the official inflation index and also provides the data so that we can look through it. Using the "Data Finder" at https://www.bls.gov/cpi/data.htm, we can find the following:

Leased cars were at historically low prices at the beginning of 2021: https://beta.bls.gov/dataViewer/view/timeseries/CUSR0000SETA03

Used cars were 10% higher in October 2020, dipped a bit at the beginning of 2021, and are now 40% higher than pre-pandemic levels: https://beta.bls.gov/dataViewer/view/timeseries/CUSR0000SETA02

New cars are currently 10% above pre-pandemic levels: https://beta.bls.gov/dataViewer/view/timeseries/CUSR0000SS4501A

This answers the second question of how much more are cars costing. The first question of "how to tell things are back to normal" would be answered by the costs dropping back to pre-pandemic levels or leveling off to their future prices (which we wouldn't be able to determine until much later). The third question of how long until things are back to normal is much more difficult to answer.

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