Have we reached peak used car prices? No one can say for sure, but there are definitely signs that the market is beginning to cool off. With some car model prices elevated above 30% compared to last year, this could be a good time to sell your car, especially if you don’t need one right now.
Why auto prices might drop
Prices are already showing signs of leveling off, as they edged up only 0.2% in July, compared to a 10.5 percent increase in June. A big driver of these price increases has been a shortage of semiconductor chips that has halted the production of new automobiles. This, in turn, has led to increased demand for a limited inventory of used cars, leading to higher prices.
While the chip shortage will likely be an ongoing problem until at least the end of 2021, some observers believe that we’re in the worst of the shortfall, and that prices will fall once supply catches up to demand. Last month, a Goldman Sachs analysis said that that semiconductor chip production should progressively increase for the rest of the year. That doesn’t mean that prices will necessarily go back to pre-pandemic levels right away, but it’s reasonable to assume that prices will eventually drop as the production of new cars increases. In an interview with CNBC, Jeff Dyke, president of Sonic Automotive, argues that this will cool down the used car market:
New car inventories are going to get better progressively over the next few months as we get to the end of the year. As that happens, it’s going to alleviate the amount of inventory issues happening on the pre-owned side.
Wholesale prices have also declined, which means that dealers are paying less for cars—another sign of a softening market. Per David Paris, of JD Power:
Wholesale prices look like they peaked eight weeks ago, and have been moving down since then. The vehicles being sold at dealerships today were acquired on average five to six weeks ago.
Should you sell your used car now?
No one knows for sure when the temporary shortage of semiconductor chips will end, but as the supply crunch eases it’s reasonable to assume that will have a negative effect on prices, even if they only level off. And with prices at historical highs, it’s certainly not a bad time to sell your car, either way.