How to Navigate Surging Used-Car Prices

Used-car price increases are helping to drive the nation's rising inflation rate, according to government data

detail of cars in used car lot with price written on windshield Photo: iStock

Used-car prices have continued their steady upward climb this year as new-car shortages put increased pressure on the used market. The most recent Consumer Price Index report, from August, shows that prices were up almost 32 percent over a year earlier, and a major used-car retailer tells us that prices have crept upward each month this year.

“We continue to see an upward trend in average used listings prices,” says Nick Woolard, an analyst at TrueCar, a Consumer Reports partner that tracks industry trends and provides a platform for auto listings. “In October, our average used list price is $31,676, which is up 29 percent compared to a year earlier.”

Woolard says that current used car prices are 42 percent higher than they were in the first quarter of 2020, before the pandemic caused widespread closures and market disruptions. The price increase has helped drive an overall rise in the nation’s inflation rate.

Lauren Donaldson, senior director of accounts at PureCars, a consultancy that advises dealerships on marketing strategies, says consumer searches for used cars are double what they were a year ago. That means the cars are being sold a lot faster. She advises that shoppers move quickly if they see a car they like.

“The silver lining for consumers is that even though prices are higher, your trade-in will never be worth more than it is today, and that may put you in a better position to purchase a newer car,” Donaldson says.

In good times and bad, Consumer Reports members can search our Used Car Marketplace for vehicles for sale in their area, sorting by the factors that matter most. The listings include CR reliability and owner satisfaction ratings, and there’s a free Carfax report for most of the vehicles. Members can also access ratings and information on used vehicles going as far back as 20 years.

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The relatively high price of used cars was pushing many buyers toward new cars a few months ago, but now that a global semiconductor shortage has prompted many automakers to slow or pause production, new cars are more scarce.

Now even rental car companies—many of which sold off vehicles during the pandemic last year when car rentals and travel in general plummeted—are buying used cars just to bring their fleets back in line with rising demand.

The widely watched Consumer Price Index surged 5.4 percent in June compared with one year ago, the government said Tuesday, resulting in the highest inflation rate in 13 years. That follows an average inflation rate of just 1.4 percent last year, when the COVID-19 pandemic kept many people at home.

Donaldson says that as demand has surged for SUVs and trucks, dealers are more likely to negotiate over the price of sedan models, which have waned in popularity over the past several years. CR has found that typically, sedans tend to be more fuel-efficient than SUVs of equivalent size.

Check CR’s used-sedan ratings and reviews.

Although used-car prices are rising faster than new car prices, experts say the spike is a double-edged sword. Dealers are trying to snap up as many used cars as they can to satisfy customer demand, and that means you can get top dollar if you’re looking to sell or trade in.

Donaldson says that dealers are most keen on finding cars under 2 years old and that the 3- to 5-year range is the next most sought-after.

CR experts say that regardless of prices, the bottom line is that you should make a deal when the time is right for you. If it’s now, you can leverage your trade-in to get the best deal possible. If you decide to wait, know that future pricing is hard to predict, especially when global supply chain problems plague automakers.

Chip Shortage

The semiconductor shortage has put a pinch on the supply of microchip processors automakers need for new cars—the chips control everything on a car from infotainment screens to window motors. It’s the main culprit behind the current tightness in the new- and used-car markets, multiple experts say.

The chip problem is compounded by a year’s worth of pent-up demand from people who are starting to venture out again as the worst days of the pandemic appear to have passed, says Woolard.

“Experts are expecting this to drag on to the fall, and as far as where consumers can go for alternatives, there aren’t a whole lot of options,” he says. “Anyone who’s waiting for prices to come down might be waiting for a while.”

“If you need a car right now, they’re expensive, and unfortunately, all signs point to prices continuing to increase,” Woolard says. “It’s a great time to trade or sell a used vehicle—used vehicles are going up in value, and that doesn’t happen that often.”

The market will calm down eventually, but it may take some time. So if you want to buy now, do your research on current pricing and deals, and be open to considering several models to increase your chance of scoring significant savings.

Head shot of CR Autos Editor, Benjamin Preston

Benjamin Preston

My reporting has taken me everywhere from Baghdad, Iraq, to the Detroit auto show, along the U.S.-Mexico border and everywhere in between. If my travels have taught me anything, it's that stuff—consumer products—is at the center of daily life all over the world. That's why I'm so jazzed to be shining light on what works, what doesn't, and how people can enrich their lives by being smarter consumers. When I'm not reporting, I can usually be found at home with my family, at the beach surfing, or in my driveway, wrenching on my hot rod '74 Olds sedan.