Used cars that are worth the same as new? Another side effect of COVID-19 in the US

Exorbitant prices and few options is the daunting scenario facing buyers of autos used in U.S, where a second-hand car costs about the same as when it came up for sale like new before a pandemic that has affected the manufacture of an essential product for millions of families.

“I’ve been trying to buy a used car for almost three months, but I can’t come up with the price of one that’s worth it,” says Armando Chavez, a Mexican immigrant desperate to get a form of transportation in Los Angeles.

Chávez managed to save US$ 8,000 to buy a car to go to his new job, which is about 30 miles from his home, but for that price he says he can’t find anything that gives him security and keeps up.

“It’s very frustrating because I don’t have any more money. I don’t want to get into debt, but I need the car”, stresses this worker who assures that he has visited more than 40 car sales sites and has even looked for offers outside the state. “Nothing, I can’t find anything… the prices of used cars are as if they were new.”

rising prices

Like Chávez, thousands of used car buyers in the country are facing an unprecedented scenario.

The increase in the prices of used cars and trucks soared month after month last year to add a year-on-year increase of 37.3%, according to figures revealed this Wednesday by the United States Bureau of Labor Statistics.

The biggest jump was in June 2020, when prices for used cars and trucks rose 10.5%, and in December the used market ended up 3.5%.

Domino effect

Armando Rivas, who just retired after 39 years in the business, during which he was longtime head of used car sales at major South Florida dealerships, explains it’s all down to a shortage of chip manufacturing ( semiconductors) in Asia that has brought new-car makers in the United States to a virtual standstill.

Inflation also affected new cars, with prices increasing 1% in December and 11.8% year-on-year in 2021, but far from that of used cars.

Faced with this scenario of scarcity of new cars and the skyrocketing prices of used cars, which in some cases are worth the same as when they went on sale when they were new just before the pandemic, many drivers choose to extend the lease contracts of their cars (“read”) as much as possible, explains Rivas.

However, he says, “there is no way out”, as this option has also increased its price significantly. “It’s a chain” in which everything is geared and prices rise nonstop.

Sums that for workers like Chávez are impossible to pay. “All prices have risen and no salary is enough,” laments the Mexican.

Big hit to the pocket

The year-on-year rate of inflation in the United States rose to 7% in December, two tenths above that of November and the highest figure recorded since 1982.

White House economic adviser Jared Bernstein wrote last week on his Twitter account that high used car prices are having a “remarkable and telling” impact on overall inflation.

“It’s a reminder of how extremely unusual this current inflation is,” he added.

A similar opinion has Rivas. “It is something absurd,” he says about a situation that he does not believe will be resolved in the short term, since the process to resume the pace of production in Asia and the opening of factories for these components in the United States will take time.

“Luckily they realized that you can’t make everything in China and, as they say, you can’t put all your eggs in one basket,” he says.

Thus, potential buyers, to whom he recommends waiting as long as possible, is not very hopeful, because what used to sell for US$10,000 is now worth US$15,000.

“They are horrified” when they get to the “dealer” and see the prices. “But if you don’t want to, fine, see you later, because someone will surely come and pay for it,” he says.

Financial adviser Carlos Guaman agrees with Rivas’s recommendation. “If you don’t need it (the used car) you’re better off waiting” at least until you get your tax refund, a season that marks a boom in US car sales.

“The rules of the game have changed and buyers are going to have to learn new tricks and improve their credit to get better prices,” says Guaman.

But Bernstein is optimistic, saying “the world hasn’t forgotten how to produce new (and therefore used) cars and we should expect this series to reverse once the supply constraint eases.” Have to wait.