If you’re thinking of buying a used car, truck, van, or SUV, I’m pretty sure you’ve been shocked at how expensive used vehicles are. As an auto industry expert and observer, I can assure you that they’ve been that way for some time now. You need to ask yourself, should you wait until 2023 to buy a used car? Here are ten reasons why I think you should.
- Depreciation time bomb
- Used cars are overpriced right now
- New car production is still limited
- The panic factor
- Good deals are almost non-existent
- Some asking prices are illogical
- Don’t place too much focus on interest rates
- New models held over last year
- Limited choice
- You could buy brand new instead
1. Depreciation time bomb
I have heard the argument recently that there’s never been a better time to sell your car because used car prices have never been higher, but that argument doesn’t hold water when you look at the broader picture.
That argument only stands if you’re selling your vehicle, banking the cash, and not buying another car at today’s massively over-inflated prices. It’s the same as house prices. If you are in a booming real estate market, you can marvel at how much your home is now worth compared to what you paid for it.
However, if you are looking to move house, any house you are looking to buy will also have gone up in price on the back of the real estate boom that has made your house worth so much. The car market is no different at the moment.
What happens if you buy a house during a boom, and later on, when the boom is over, you get into financial difficulties and have to sell because you can’t afford the mortgage anymore? If prices have fallen, your house might not be worth as much as you paid for it, and you’ll find yourself in negative equity where you owe more than the house is worth.
If you buy a used car today at an artificially inflated price, have you stopped to think about how much depreciation you’re going to experience when the market corrects itself? If the book price for a used vehicle is $1,000 more than it was six months ago and dealers are asking for $1,000 over the book price, which is common in the current circumstances, what do you think will happen?
When you come to sell that vehicle in, let’s say, two years, you will not only have lost the usual amount of money you’d lose in depreciation, but you’ll also lose that extra $2,000 you paid over the odds.
2. Used cars are overpriced right now
The number one reason you should wait until 2023 to buy a used car is that used car prices are simply too high. I accept that if you desperately need your car and your current one is letting you down, you need to get something else. If you are in that situation, you probably have no option other than to replace it, and then you have to accept that you will be paying over the odds.
However, if you just fancy a change, are you prepared to pay silly money for something you don’t actually need? You might also fancy changing your TV for something newer and more up-to-date.
If the TV you have your eye on was selling for $500 for the last year or so, would you be happy to pay $1,000 for one today, especially if there’s a good chance you would be able to buy it for perhaps $600 next year?
If your current TV stops working, you’ll have to pay the going rate to replace it. I get that. But if your current TV is working fine and your cost of living is getting squeezed by increasing fuel costs and rocketing inflation, does it make sense to pay over the odds for a used car you don’t need? If you do, will you regret that decision down the line if the general cost of living continues to increase?
3. New car production is still limited
Despite the best efforts of the auto industry, new car production still isn’t anywhere near where it needs to be to meet consumer demand. When new cars are in short supply, fewer people can buy new cars, which means fewer trade-ins find their way into the used car market.
Until we get back to the point where consumers can walk into just about any dealership and do a deal for the new vehicle they want there and drive it away that day or a couple of days later, used cars will remain in short supply, and prices will remain too high.
Although the effects of coronavirus lockdowns on new car production are easing, and factories are finally in a situation where full production is possible, supply chain issues such as a short supply of microchips continue to limit production capacity. We are also seeing continuing waves of the omicron variant of the virus. Although the symptoms are essentially very mild, it’s still resulting in a higher percentage of absenteeism than average. Again, this hits new car production, and that knock-on effect on the used market continues.
4. The panic factor
It’s only a short while ago when panic-buying was emptying supermarkets and grocery store shelves of essential items everywhere as coronavirus hit and lockdowns began. When even level-headed people saw products like dried pasta and bathroom tissue being snapped up and becoming scarce, they also began to grab more than they needed if they got the chance.
Something similar is happening in some places with used cars. Some people who don’t need to change their cars but who might have been looking to change in a few months are hearing about them being in short supply. They then panic that they won’t be able to get what they want when they want it or that it could cost even more if they don’t buy it now.
I’m not criticizing those people. It’s a perfectly understandable train of thought. What I would say is that I believe this situation will ease, and the market will get back to normal by 2023. Is it worth paying thousands of dollars extra for a used car you don’t really need today when you could buy that car for a much more reasonable price in a few months?
5. Good deals are almost non-existent
When was the last time you went to buy a used car and paid the sticker price without trying to negotiate a better price? Used cars are one of the only things that we in the Western World are programmed to negotiate the price.
Not too long ago, if you walked onto a dealer’s lot and got told you had to pay the asking price or find something else, I’m pretty sure that most people would have walked away in that situation.
There are exceptions to that, and I accept that some big used car retailing companies have adopted aggressive pricing strategies where you would struggle to find a better deal. The strategy has been to price vehicles as the lowest in their area and adopt a take-it-or-leave-it attitude with buyers, but the old haggling way of doing things with used cars is still highly prevalent.
Dealers know at the moment that used cars are increasing in price in some cases, so why would they knock anything off the asking price when they know someone else will be along in a moment who will pay that price?
6. Some asking prices are illogical
If you want to buy a brand-new 2022 Chevrolet Traverse 1LS, the starting MSRP is $33,700. Would you be prepared to pay $34,995 for one that was six months old with 11,000 miles on it? That’s the type of deal you’ll find in some places at the moment.
Don’t get me wrong; I’m a free-market capitalist, and I don’t blame any dealership for making as much as it legally can on its limited supply of used car inventory. If you are prepared to accept a deal like that, good luck.
I’d get it if we were talking about something essential, such as food or drinking water, but a used car selling for more than it cost when it was brand new? And don’t forget, most people wouldn’t have been prepared to pay the full MSRP when it was brand new, never mind even more for it when it was six months old.
If you’re prepared to accept that kind of thing, then go ahead. Personally, I can’t imagine a situation where I would be so desperate to buy a used car that I paid more for it than it cost when it was new.
7. Don’t place too much focus on interest rates
Interest rates for auto loans are higher now than they’ve been for many years, and they’re probably going to get higher. You might think that’s a reason to buy now rather than risk higher rates later, but I will argue otherwise.
Interest rates may or may not go higher over the next 9 to 12 months, but I’m reasonably confident that used cars won’t be selling for more than the new MSRP for much longer. New car production is increasing gradually, which means more new car sales and more trade-ins entering the used market.
I suggest you’d spend less money if you wait for prices to come down than you would by paying way over the odds for a used car today at what may or may not be a slightly lower interest rate.
8. New models held over last year
Many new models have started to enter the market over the last few months, and some of them are considerably better than the cars they replaced. Many new vehicles were supposed to be all-new for the 2021 model year but were delayed because of covid and its effect on the industry, especially while demand economies like ours were effectively in hibernation.
By the time we get to 2023, these redesigned and all-new models will be entering the used market. Why would you want to buy an old model at a grossly inflated price today when you will probably be able to buy the redesigned version next year for the same money or less?
If you don’t like the new version, go ahead and pay too much for an old one today. I, however, won’t be joining you. If you wait until next year, you’ll be able to buy used versions of the new or redesigned models for 2022, including the Jeep Grand Wagoneer, Kia Carnival, Hyundai Tucson, Honda Civic, and many more.
9. Limited choice
One of the best arguments for buying a used car instead of a brand new one is the much more comprehensive choice of models and prices. Under normal circumstances, you might decide you want a particular model and trim level, such as a Mazda CX-5 Sport. If your budget wouldn’t stretch to a new one, you could look for a used one that fits your budget.
You could look at the vast number offered for sale and go for one that’s older or with higher mileage until you find some that fell within your budget. There’s much less choice at the moment, so you could end up stretching yourself a little too far or settling for something that’s older or higher mileage than you would ideally want. And, of course, you’ll also be paying way more for it than you should.
Paying over the odds for something that’s not what you really want? That doesn’t sound like a recipe for success and fulfillment to me.
10. You could buy brand new instead
I’m never going to accept the argument some people put forward about them actually preferring used cars to brand-new ones. If you can afford a new one and you’re happy to pay that amount out for a car, a brand-new one will always be preferable to a second-hand one.
Let’s say for a moment that you have a monthly budget for a car today of $400 per month, and you are thinking of buying a used car for that. If you wait until 2023 and new car production gets back up to full speed, manufacturers and dealers will be discounting and offering deals again. It may well be that $400 per month is enough to lease a brand-new version of what you’re looking at as a used model today.
As I said at the start, some of you will have little or no choice in the matter, and you have to change your current vehicle for something else. If that’s the case, you’ll have to pay over the odds, but at least you might be able to console yourself that you’re getting more for your trade as well.
However, if you can stick with your current vehicle a little longer, there’s every chance things will look a lot better in 2023. If you agree, you should probably look at some preventative maintenance by ensuring you get your vehicle serviced adequately, or at least get anything that’s not quite right with your current vehicle looked at by a professional.
If you’re worried about the possibility of something expensive going wrong with your current car between now and next year, you could look at covering yourself against the unknown with your current ride. If you don’t want to commit to an annual policy, try a quote for a warranty and peace of mind that you only pay for on a month-by-month basis.
I’m not generally a fan of buying used car warranties, but this is an entirely new kind of warranty that I genuinely believe is the best I’ve come across in 20 years or longer.