SAN DIEGO (KGTV) — If you’re thinking about trading in your used car, now might be the time.
Used car prices are beginning to cool off but remain near the historic highs caused by the pandemic, according to data from Edmunds.
After a peak in September, dealers paid 3.3% less on average for trade-ins in October. The average used vehicle transaction price, however, remained flat at a record-high $22,418 in October because of an influx of relatively new off-lease vehicles.
"If your household has a second vehicle that you are thinking about selling because it's going unused during the pandemic, there's no point in holding onto it in the hopes of its value increasing again,” said Ivan Drury, Edmunds' senior manager of insights. “You won't get a dramatically higher value for your trade-in than you would have just last month, but you should still get a bit more money than usual since values are still inflated."
Used vehicles are worth 16.9% than they did last year, according to the Manheim Used Vehicle Value Index.
What caused the historic spike
In some ways, the pandemic was a time machine for used car prices, reversing depreciation and making pre-owned vehicles worth more than they did a year ago.
“That’s kind of crazy to see appreciation on a used vehicle,” Drury said.
Drury said he sold a car after owning it for a year for the same price. “That’s unheard of.”
Industry experts say it’s a matter of supply and demand. During the pandemic, the supply of used cars dropped, while the demand soared. Both caused prices to spike to record levels.
On the supply side, the shutdown of new car manufacturing had a cascading effect on the used car market.
“We weren’t churning out new cars, which meant there wasn’t much for shoppers to buy. Therefore people weren’t trading in their used cars,” said Michelle Krebs, Autotrader’s executive analyst. “Everything just kind of stopped.”
On top of fewer trade-ins, the pandemic brought the car rental industry to a standstill. Normally, companies like Hertz and Enterprise refresh their fleets, selling off about two million used cars a year. Car rental companies kept their fleets parked during the early months of the pandemic.
The third reason supply plummeted: a lot of people decided to put off car buying and extended their leases, so those vehicles weren’t available for sale, although that is now beginning to change.
At the same time the supply of used cars dropped, demand for used vehicles surged.
“The factories were shut down. They weren’t producing. A lot of consumers, even if they wanted to buy new, they suddenly had to look at used,” Drury said. “That jacked up demand. We had consumers fighting for the same units of inventory.”
Demand also rose because people in metro areas that typically relied on public transportation decided to get cars for the first time. And in an environment with a lot of financial uncertainty, used cars were a more affordable option, Krebs said.
Low interest rates and stimulus checks also fueled demand by giving consumers more buying power, according to Krebs and Drury.
With car rental businesses picking back up and lease extensions beginning to end, the supply of used cars has begun to stabilize. That means now may be the time to sell your used car, particularly before the calendar flips to 2021 and vehicles get one model year older, Drury said.
You’ll get more for your used car if you trade it in now, but there’s a trade-off: “You’re also going to pay more for a new car,” Krebs said.