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Why do used cars cost so much?

For sale sticker on a car

The world’s economy is based on a system of supply and demand. In essence, it’s a delicate balance between your need to buy new stuff and a company’s need to sell you it.

It’s a system that has remained unchanged since people began to trade crops, milk, livestock, fossil fuels. Industrial secrets, even. And this system is why prices go up at times of high demand, because companies can charge more when people are clamouring for their goods, but prices fall when demand is less, and companies suddenly need to get rid of surplus stock in return for your cash.

So why are used cars still so expensive right now?

There are several reasons why prices of secondhand cars are so high at the moment, but one of the main causes is… 

How did the pandemic cause prices to rise?

Think back to the early days of the Covid-19 pandemic, when everyone was told to stay at home. Cars sat gathering dust and cobwebs, and the price of petrol and diesel went into freefall, but now that things have opened up again and everyone’s travelling here, there and everywhere, the cost of a litre of fuel has gone stratospheric.

It’s also why you pay a huge amount more for a holiday during half term, but that’s another story. And yes, there are other global market forces at play at the moment, but the basic premise remains the same – if more people want stuff, the more they’ll have to pay for it.

And that’s why we’re in a situation where used cars are hugely expensive. You see, despite the fact that magazines, websites and video channels are full of new cars, the fact is people are struggling to buy them at the moment. Why? Well, it’s that pandemic again.

Semiconductor chip car

Is the semiconductor shortage a problem?

To reiterate, we all had to stay at home, and unfortunately the manufacture of anything is not a task that can be done in your living room. Apart, perhaps, from knitting. Anyway, some of the people who had to stay at home had been gainfully employed making the semiconductors that appear in electronic systems everywhere, be that computers, mobile devices, televisions – and cars.

This has caused a glitch in supply that is proving difficult to catch up with, given Covid-induced staff absences and a shortage of materials.

And much to the car industry’s chagrin, it’s finding that it isn’t first in the queue. Tech firms such as Apple and Microsoft are well ahead of it, and show no sign of stepping aside. As a result, the car industry can’t build cars at the rate it needs to, and so can’t get vehicles out to customers. Which brings us back to the whole supply-and-demand thing.

The new-car market has come to a shuddering halt because people aren’t willing to wait up to a year for the vehicle they want, so they’re turning to the used market instead. But people are also hanging on to their vehicles, so demand is far outstripping the supply of even used cars at the moment.

What’s forced turnover in the leasing market?

In addition to that, the car-leasing and personal-contract-purchase sectors are reliant on new cars, and this forced-turnover area of the market is further exacerbating the shortage of both new and used cars.

Those with a car that’s coming to the end of its lease are finding that they cannot get a replacement in a reasonable timeframe, so are either choosing to hang on to their current cars and extend their current lease agreements or are being forced into the used market. 

Similarly, those coming to the end of PCP agreements are being either forced to pay the balloon payment to take final ownership of their car or are handing back their cars and buying a used car to see them through until the shortage eases.

All of this means that there are far more customers than available vehicles, and the situation shows little sign of changing through 2022. Indeed, some commentators are saying it could last well into 2023.

The upshot is that the people selling used cars are rubbing their hands with glee, and have been able to hike prices in the face of overwhelming demand. Great news if you’ve got a used car that you’re ken to get rid of, but much less so if you’re one of the multitudes who has no choice but to buy a secondhand car. Supply and demand. Grain farmers and goatherders throughout the ages could empathize.

Swapping car for cash

How can you work the system?

You can make the current situation work in your favour. The short-term answer is to sell your used car and make a killing. Boom! Easy peasy. People were doing this regularly even before lockdown. However, there’s a kink in this process at the moment. You see, unless you plan to use the profit you’ve made on bus fares, you’ll then face the issue of replacing your used car. But used car prices are at an all-time high. See the problem?

The better thing to do could be to hang on to your used car and run it as cheaply as possible in this era of high fuel and energy prices. And the most economical way to run your car is the same as it has always been – the Haynes way. In other words, use it as little as you can get away with, and do the service and repairs yourself, making full use of the automotive encyclopaedia that is the Haynes database. Not only will you avoid having to pay interest on finance, but you’ll also save between 30% and 60% on labour charges. That’s got to be worth thinking about.

It’ll be a while yet, but the market will revert to some semblance of normality, at which point you might want to think about replacing your car. Until then, you’d be wise to hang on to what you’ve got and get out the spanners yourself. In a world facing a cost-of-living crisis, sticking with what you know while learning useful home-repair techniques, has to be a win-win.