Used car prices surge amid chip shortage. Is it time to sell your ride?

Used vehicles prices have soared in recent months, especially earlier this year. Compared to the previous month, used vehicles prices surged 10% and 7.3% in April and May, respectively, according to data from the Bureau of Labor Statistics, before a 10.5% jump in June. These increases were followed by minimal fluctuations in the summer months and a 2.5% increase in October.

Year over year, component indexes for used cars and trucks increased 26.4%, and new vehicles jumped 9.8%, the “largest 12-month increase since the period ending May 1975,” the report said.

“The used-car market is feeling the effects of the new-car market’s semiconductor chip shortage woes,” said Jenni Newman, editor-in-chief at Cars.com.

Citing company data, Newman said new-vehicle inventory has decreased 60% in 2021, with the median price tag up 53% in less than one year, jumping from about $16,000 in January to $24,524 in October. Overall, this premium pricing is spread out across the spectrum of vehicle makes and models, according to Newman.

“Because there are fewer new cars for sale right now, that’s pushing a lot of shoppers into the used-car market, which is leading to greater demand for used cars as well as higher prices,” Newman said.

The chip shortage hindering new vehicle production isn’t expected to normalize in the near term and could last beyond 2022 by some estimates. So, when could used car prices peak and how long could increased pricing last?

“We’re seeing the monthly rate at which used-car prices increase slow, and with used-car inventory levels increasing, it could be that used-car prices will stabilize at this higher level within the coming months,” Newman said, citing company data.

As for a concrete timeline for this economic situation, Newman said it’s “difficult to say” when pricing could peak, but it’s “unlikely” used car prices will drop in the near term.

“The new-car inventory levels need to increase, taking pressure off the used-car market, and that increase is dependent on chip shortage being resolved, which could take most of 2022,” she said.

In the interim, the chip shortage and supply chain bottlenecks could present an economic opportunity for some car owners; especially people with an extra vehicle they could put on the market.

If people have a vehicle they aren’t using regularly, Newman said now is a solid time to sell these assets.

“Maybe they have two or three cars and there’s one that’s always sitting in the driveway, that’s the one to sell,” she said. “With the used-car market inventory at a higher level, the window for selling a used vehicle to a dealer at a premium could be closing in the coming months.”

On the flip side, Newman said households with only one vehicle may want to hold onto these models.

“While you could get top dollar for it, buying a new or used car could take a while due to the inventory issues and it could also cost a lot more than you anticipated,” she said.

For one-vehicle households in the market for another car, Newman offered a few suggestions to help with the search. This includes starting the search earlier, remaining flexible and considering ordering a vehicle from a dealership.

While the window for people looking to sell a used vehicle at a premium is tied in part to the current chip shortage, this economic opportunity may not end immediately as semiconductor chip inventories normalize.

Even when the chip shortage is resolved and new vehicle inventories return to normal, Newman said it could take months for used vehicle prices to drop.

“While it’s possible that automakers could flood the market with new cars, I suspect that they will take the lessons learned over the last two years of pandemic and work to keep the supply of new cars under tighter control.”

As a result, it could take some time for used vehicles prices to drop, according to Newman, and even when they do, she said these prices won’t decrease to the levels we saw in early 2021.

Mark Beneke, the co-owner of two used car dealerships in Fresno, Calif., said he doesn’t expect the high used car appreciation to last “forever” and recommended people take advantage of the current market opportunity, albeit with stipulations.

“Obviously, [selling your car] doesn’t make sense if you’re just going to go purchase something else that is overpriced. That would just put you in the same spot you were in,” he said. “However, if you have extra vehicles that can get you by, take advantage of the chip shortage!”

As an example, Beneke said an employee recently sold their own 2016 vehicle with “tons of miles” and a number of dings and scratches for $1,000 less than the original amount paid for the new vehicle.

“If that doesn’t show you how insane this market is right now, I don’t know what will,” he said.