Why Are Used Cars So Expensive Right Now?

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The rising prices and interest rates are making it increasingly more difficult for people to afford used cars. Customer confidence has also taken a hit thanks to rising costs.

CarMax reported on Thursday that its earnings plunged 54%. The number of cars they sold fell 6.4% compared to this time last year.

Car prices have been rising steadily for the last two years. There were many factors that contributed to this, most notably part shortages like computer chips. Shortages in these types of items limited the supply of cars, but customer demand stayed the same.

Higher vehicle prices have been a driving factor in overall inflationary pressure due to the fact that around 40% of households buy a car every year.

In an attempt to curb inflation by decreasing consumer spending, the Fed has raised interest rates exponentially. Used car prices are up 48% from August 2019, and new car prices have gone up 30% in the last three years.

CarMax reported that the average price of a vehicle is around $28,657 in the three months ending in August. These numbers show a 9.6% increase compared to last year, but 1% down from the previous quarter.

It's not just the cost of buying and financing the car that's putting a drag on sales, CarMax executives said. The overall pressure on household budgets from higher prices in other industries is also an increasing concern.

As new vehicles are produced and brought into the market, the price will eventually get driven back down. This will take time as facilities combat chip shortages and backed-up supply chains. Automotive experts expect the chip shortage will be resolved within the next year.

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