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It’s hard to believe, but we’ve now entered year three of the pandemic and the supply chain issues that followed. Every time it feels like we might be getting the upper hand in the battle against COVID, along comes another variant or a new strain of an existing variant and the fight continues. On a positive note, while the latest variations are each even more highly transmissible than the last, they tend to cause less severe illness, thanks in part to the availability of vaccinations and boosters. The pandemic has had economic impacts that vary widely by industry and over time, but the effects are still painfully evident, especially in the car market. It’s important to take a hard look at where the car market has been, where it’s at now, and where it may be heading in the future.
Where We’ve Been: How the Pandemic Wrecked the Car Market
When the pandemic first hit hard, it was a mess. The novel coronavirus came out of nowhere and started wreaking havoc in short order around the world. It was deadly and the only thing that could be done in those early days was to basically shut everything down. People were scared, they were dying, they were isolated at home, and no one had any idea how long it was going to take to come up with a vaccine. The world came to a screeching halt, and that included the economy. It was a nearly instant and sharp recession.
The immediate impact on the car market for both new and used cards was that demand plummeted to practically nothing. No one was going out to buy or sell cars at all, whether new or used. But that worst part of the overall economic recession was surprisingly short-lived. By official definitions, the pandemic-induced recession only lasted two months, making it the shortest recession in history. But that didn’t mean everything was back to normal—far from it! Because the pandemic kept going, many of its impacts only became apparent over time.
The initial sharp decline in the demand for cars was only temporary. Soon enough people were once again wanting to buy used and new cars. But by the time people wanted to get back into the car market, a new impact had revealed itself—disruptions in the global supply chain, including cars. Manufacturers had curtailed production of new vehicles during shutdowns, and by the time they wanted to ramp production back up, there were parts they needed and couldn’t get. The worst supply chain disruption that affected new car production was a shortage of the microchips that run all the computerized systems of a vehicle. Without those, new cars simply couldn’t be made fast enough to keep up with rising demand.
This decline in the supply of new cars also affected the supply of used cars since a lot of used cars end up on dealership lots through trade-in deals, but with so few new cars available, trade-in deals weren’t event possible. The other big sources of used cars many dealers depend on are the wholesale car auctions, but those remained mostly shutdown during most of 2020, or only conducted limited online auctions. With rising demand but limited supply, prices shot up to levels never seen. Used car prices in 2021 were as much as 47% higher than pre-pandemic pricing. In addition to low supply and high demand, there has also been an overall sharp increase in prices for everything. Inflation came roaring back at levels we haven’t seen in decades.
Where We Are Now: Cautious Optimism
So far in 2022 it doesn’t feel like much has changed at all. The supply of both used and new cars is still far outstripped by demand, which along with general inflation has kept prices for all cars at their elevated levels. But those prices have at least stopped rising and in some cases have begun to fall ever so slightly.
A hard dose of reality, however, is being dished out by Jonathan Smokes, the chief economist at Cox Automotive, the company that owns Kelley Blue Book, Autotrader, and Manheim Auctions (the largest wholesaler of used cars). According to his projections, prices may come down a bit in 2022, but they will not suddenly come down to anywhere near what they were back in 2019 before the pandemic.
Where We’re Heading: Predictions Are Risky
Predicting what is going to happen in any specific market or in the economy at large is a risky proposition. You can always find an economist whose prediction you like, right? Some economic predictions are going to be right, and some are going to wrong. There are analysists making car market predictions that run the gamut.
Some are saying 2022 car prices are going to remain mostly elevated, though maybe not quite as high 2021. Others are predicting a gradual decline in prices during the second half of 2022. There are some, however, who think the used car market has entered “bubble” territory and are predicting that bubble is going to pop. Those analysts (consulting firm KPMG is one) think there’s going to be a sudden crash in used car prices by as much as 20–30% if the new car market gets back to normal. There is more agreement that new car prices are going to keep going higher throughout 2022 and into 2023. Meanwhile, the average price of a used car is about to hit $30,000 for the first time ever.
Got a Car to Sell? Try Driveo!
As far as we can tell, 2022 in the used car market is going to mostly feel a whole lot like 2021, with the possible gradual decline of prices. If you’ve got a car to sell, that’s good news. Many dealers and private buyers are still scrambling to buy what they need, which means you’ll get more for your used vehicle than you ever thought would be possible. The bad news, of course, is if you need to replace the car you’re selling, it’s going hurt, whether you buy new or used.
If you have a car to sell and want to get more money for it than you would get on a typical trade-in offer and don’t want to deal with the hassles and headaches of selling privately on your own, Driveo is the perfect solution. We offer all the speed and convenience of a dealership trade-in but put more money in your pocket. You can get a fast online quote that’s good for a full 30 days, which gives you a chance to shop around for a better offer. If you do get a better offer, snap a photo of it and send it to us using our offer upload page to see if we’ll beat it. And if you like our quote, just make an appointment to come in and seal the deal. People like us because we treat every customer right, and you’ll love how easy it is to cruise in and cash out with Driveo!