Demand for used cars rises as production of new vehicles slows

LOS ANGELES (NewsNation Now) — There aren’t as many bargains in the used-car market these days. It’s partly due to a chip shortage that’s been cutting into the inventory of new cars, and pushing people into the pre-owned market.

The offerings are usually packed into the Venice Cash for Cars lot in Los Angeles. But these days, there’s only about a dozen. 

“Inventory has been tough. You know, a lot of cars in the past that we’ve been able to get have been limited the past year really put some effort into buying,” said Venice Cash For Cars owner Dan Marks.

He says high demand has more cars going than coming. Five rolled off the lot with new owners in just the past few days.

According to Edmunds, the preowned market is on fire. Last month, everything newer than model year 2016 sold for well over $20,000. 

“You have no control over the situation and for some people, it’s great,” said Ivan Drury, Senior Manager of insights for Edmunds. “They’re going to get a lot of money for their trade-in. For other people, it’s unfortunate because they’re going to be paying a lot more to buy your used car.”

The inventory issue is partly driven by the ongoing shortage of computer chips, which has held up the production of new cars. Due to demand, many new vehicles are now selling above sticker price. The spillover effect into used vehicles is significant — especially when it comes to mid-sized trucks. 

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“Eighty percent of the original value is the asking price,” said Drury. “I mean, this really is one of those things…there is no supplement, right? There’s no supplementary good. It’s not like you’re going to jump on the horse and carriage.”

Consumers are facing inflation and fewer options on many fronts due to pandemic-induced issues with shipping, production, and other factors. 

Less inventory and higher prices have been reported on everything from groceries to appliances.

As for cars, industry observers don’t expect things to ease for at least six months.

“I hope it comes down a little bit because I like to buy cars for a reasonable price and sell them for a fair price,” said Marks. “And right now, it’s not happening.”

Due to market conditions, Edmunds says it is a great time to maximize the value of a used car. However, consumers can expect far more negotiating over their trade-in than on the price of their next vehicle.