Used car prices have increased by 17 percent in the past 17 months, The Washington Post reports– more than any other product on the market. And it could very well indicate that inflation could weaken the economy.
Much of the automotive industry’s problem stems from the fact that the auto industry was turned upside down en masse as a result of the COVID-19 pandemic. No cars came in and no one bought used cars. So used car companies started raising their prices to support the few sales they made. And when people got their incentive money and tax refund checks, demand jumped beyond the capacity many lots had.
With the Biden government’s new stimulus law coming into effect, economists are concerned that the extra money is “overstimulating” the economy. Now I know a lot of people will call that bullshit – the United States still does suffer from high unemploymentt, so people generally theorize that incentive money will go to the essentials. But economists think they can use the history of the used car market to predict trends.
Here’s more from the article:
Since the onset of the pandemic, used cars and trucks have seen the fastest price increase of almost all consumer goods categories data van de Bureau of economic analysis. The only categories competing with this are major household appliances and ‘flowers, seeds and potted plants’, both of which have seen prices increase by more than 10 percent between February 2020 and January.
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Business owners love [Michael] Darrow says there isn’t much room for raising retail prices above what they pay at auction. The new car supply chain is limited by plant closures and ongoing precautions to protect workers. And that, in turn, puts pressure on the used car market, which relies heavily on trade-ins and auto parts. A global shortage of microchips is further disrupting supply chains.
All things considered, it is more expensive for dealers to repair and buy their models, on top of the added cost of staying open during a pandemic.
Darrow doesn’t think the price increases he sees can last for long. Shoppers knoww the value of a car, Darrow said. Sometimes he wonders how long dealers can pass on even higher prices for cars and trucks before their customers run away.
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In fact, economists are concerned that used car inflation may indicate a rapid rise in inflation across the board, where the cost of everything can jump as much as 10 percent. The federal government strives to keep inflation down to no more than two percent a year and has consistently fallen short – but the 17 percent jump in the used car market is frankly pretty harrowing.