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Why Are Used Cars So Expensive? (Top 11 Reasons)

Cars For Sale Stock Lot Row. Car Dealer Inventory

 

In the United States, having an automobile is not only a way of life, but it’s a necessity for most people.

Besides food and housing, it’s one of the biggest expenses people will have.

In recent years, new cars have become increasingly more expensive.

Trying to save money by purchasing a used car, however, may still cost more than you anticipated.

If you’ve been to a used car lot recently or looked for a used car online, you know how much costs have gone up.

There are several reasons this has occurred.

 

Why Are Used Cars So Expensive? (11 Reasons)

Used car sales

 

The following are eleven reasons used cars are so expensive.

 

1. Increased Production Costs

Car production line

 

You may think it doesn’t matter what the production costs are when it comes to making a car because you’re looking to buy a used car.

Before a car is used, it’s new.

Therefore, to understand why used cars are so expensive, it’s necessary to understand why new car costs are going up as well.

According to Car and Driver, by the time a car is produced and sold to the public, it costs an average of $47,100.

Since it costs more to make a car, it’s going to cost a lot more when people finally decide to sell it.

Why are these production costs so high?

It costs more to produce almost any type of product these days.

This is particularly true of cars, since there is an enormous number of parts that go into the making of a car.

There are two types of costs involved in manufacturing a vehicle.

These include fixed costs and variable costs.

Fixed costs usually include paying suppliers, testing prototypes, and maintaining facilities.

The problem is that even fixed costs are going up.

Variable costs, such as raw materials and labor, are also increasing.

These increasing costs, in turn, get passed on when someone decides to sell a car that was purchased as new.

 

2. Worker Shortages

Car factory

 

There are lots of places where people can buy used cars.

These include dealerships, used car retailers, and online.

One of the main things they all have in common is that they need employees to help run their businesses.

Getting workers to work for the car companies is a problem that is contributing to rising costs.

Whether it’s car companies or just about every other type of business, it’s been difficult to hire and retain workers.

Places all over the country are experiencing labor shortages as well as a variety of other difficulties.

An example of this is seen in dealerships in Staunton, Virginia.

The Covid Pandemic was the initial reason it was difficult to get workers.

Not only are there still lingering problems from Covid, but other problems have surfaced as well.

Inflation is now a major contributing factor to the worker shortage many organizations are now facing.

Because the cost of almost everything is going up, workers are demanding higher wages in the marketplace.

Unless companies can pay employees more, many of them will quit, and this contributes to a high turnover rate.

Constantly having to hire and train new employees is costing businesses more money.

That’s if they can even find employees who are willing to work.

All of this is contributing to higher prices for used cars.

 

3. Increased Labor Costs

Automechanic unscrewing tire bolts

 

Because of the labor shortage and rising inflation, car dealerships and used car lot owners will likely be paying individuals more to work for them.

To attract and retain quality professionals on their used car lots and in other types of businesses that sell used cars will mean paying higher salaries and offering better benefits.

These costs will be passed on to the customer with higher prices.

It’s not just rising costs associated with car production and worker shortages, but labor costs also include mechanics whose skills are needed to repair used cars and keep them in good condition.

According to Mechanic Base, labor costs for repairing a car can cost anywhere from $45 up to $170 per hour.

Used cars often need repairs to get them ready to sell and safe to drive.

A good mechanic is not the type of employee who can be hired and trained in a few weeks.

On average, it takes a mechanic approximately two years of post-high school training to learn the skills necessary to successfully work on different types of vehicles.

A few of the factors that will determine how much a mechanic will charge will likely include the following:

  • The Location of the Repair Shop: Repairing a car in a large urban area will probably cost more than in a small town or rural area.
  • The Type of Shop: Specialty repair shops will charge more than a general repair business. Extensive transmission and engine repairs require more time and mechanics with greater expertise.
  • The Type of Used Car: Certain cars are easier to repair and get parts for than others. Luxury and foreign-made cars will almost certainly cost more to repair.

 

4. The Pandemic

Top view of papers with quarantine and coronavirus

 

The Covid Pandemic is at least part of the reason the entire economy is still struggling.

The pandemic has affected everything from how many workers are showing up for work to supply chain issues.

Besides all the ways the pandemic has affected overall costs, shortages, and transportation difficulties, it has also affected individual car dealerships.

The used car market is tightly connected to the new car market.

There isn’t a good selection of used cars available if there weren’t a lot of new cars available a few years prior.

Under normal conditions, manufacturers are producing a lot of new cars, and consumers are buying these new cars and selling their older ones on the used car market.

They may also be leasing a new car, and when the lease ends, the car is then sold as a used car.

Another area that produces used cars is the rental car industry.

Rental car companies regularly replace their fleet of vehicles with new ones.

This also would normally add to the used car market.

When the pandemic hit, people weren’t traveling as much and were working from home.

For this reason, people didn’t buy as many new cars, and there are now fewer used cars for sale.

For the same reasons, rental agencies weren’t renting cars as much and didn’t need to buy new ones.

When people and businesses aren’t buying new cars, as was the case during the pandemic, the supply of used cars simply dries up.

The supply of used vehicles that had previously been on the market is getting older and starting to break down more.

The healthy supply chain of new to used cars has broken down over the past two or three years, resulting in fewer used cars and ultimately higher prices.

 

5. Larger Vehicles

Ford Truck

 

In recent years, both cars and trucks have generally gotten larger.

TrueCar Adviser states that while cars aren’t as big as some of the massive vehicles from the 1950s and 60s, most automobiles have gotten bigger than what they were even a few years ago.

There are several reasons vehicles have gotten bigger during the last five years or so.

A few of these include more safety features, better engine performance, and more amenities and comforts for the passengers.

Whether it’s a car, truck, or SUV, if any type of vehicle is larger, it is going to take more raw materials to make that vehicle.

Therefore, not only has the pandemic and increased worker and production expenses added to the cost of vehicles but so has the public’s appetite for larger cars and trucks.

Larger cars and trucks mean there are more raw materials used in making each vehicle.

After a car is one or two years old, those selling the vehicle will simply ask more when selling it.

Therefore, used cars are now more expensive than ever.

 

6. Increase In High Tech Safety Features

Interior of exclusive car

 

New technology in cars is driving up the prices of all types of vehicles.

One popular type of technological advancement is the Advanced Driver Assistance System (ADAS).

An ADAS system uses a combination of advanced technology, strategically placed cameras, and radar to keep drivers and their passengers as safe as possible.

These are lifesaving and accident reduction systems that many people are willing to pay extra for.

The technology used involves vision-based algorithms, sensor fusion subsystems, and multimedia working together in real time.

ADAS is costly because there are so many functions and aspects to this system.

It has pedestrian detection and avoidance, lane departure detection and correction, automatic emergency braking, traffic sign recognition, blind spot detection, and a GPS.

Besides ADAS, there are several other features many cars now have based on advancing technology.

These include the following:

  • Safe Assistance Systems to Protect Cyclists
  • Wireless Smartphone Charging Connectivity
  • Emergency Services Software
  • Stolen Vehicle Software
  • Video Rearview Mirror
  • Teen Driver Technology
  • Automatic Emergency Braking

 

7. Increase In Luxury And Convenience Features

SUV near the river

 

It’s not just high technology features that are increasing the cost of cars.

Most cars now have more features and conveniences than ever before.

The cars your parents drove are now considered pretty simple compared to the models that have come out in just the last 10 years.

Many of these new features that cars now have aren’t about safety, but luxury and comfort.

More and more new vehicles have heated seats and even heated steering wheels.

While these may be nice on a cold winter’s day, they’re going to make the car more expensive.

The new car owner will pass on those costs when selling the vehicle as a used car.

Advancements in the structural designs of vehicles have contributed to the overall increase in costs.

Modern steel frames that are now used in many cars, trucks, and SUVs are both safer and lighter than the older structures that were previously used.

These advancements come at a greater expense to produce.

Many of these features that are now considered standard were thought of as high-tech or even a luxury not many years ago.

A few more examples include shatter-resistant glass, airbags, and anti-lock brakes.

 

8. State And Federal Regulations

document, dollar, pen, calculator and toy car with keys for design

 

Regulations for both new and used cars are increasing.

One specific area that has seen increased regulations in recent years is vehicle emission standards.

Vehicle emission standards are rising not just in the United States, but throughout the world.

Car companies are now investing millions of dollars in various research and development projects to make their vehicles more energy efficient.

This ends up making all cars more expensive.

There’s also the Federal Trade Commission’s Used Car Rule that dealers must follow.

This rule is basically a list of duties a car salesman or dealership must adhere to and steps they must follow.

A few of these include preparing a buyer’s guide and following guidelines for any warranties and services that are offered for the car.

There’s also lots of paperwork involved when selling a used car.

Paperwork that is generally required includes the following:

  • The Title
  • Vehicle History Report
  • Odometer Disclosure
  • Notice of Transfer or Release of Liability
  • Bill of Sale
  • Owner’s Manual
  • Service Records
  • Warranty Documents

These are a lot of documents that may or may not be easy to locate when selling a car.

In some cases, it may take a lot of time and legwork to find and retrieve these documents.

The costs for the time involved will often be passed on to the buyer.

The actual document requirements can vary from state to state, meaning it will take more time just to find out exactly what is needed when selling each car.

 

9. Increased Desire For Used Cars

Car parking in asphalt parking lot in a row

 

As everything becomes more expensive and inflation continues to rise, people are looking for a bargain on almost everything.

Besides a mortgage or rent, transportation expenses are one of the highest costs many people have.

People are looking for ways to save money, and purchasing a used car instead of a new one is one way to do that.

With a greater demand for used cars, this is limiting the supply and ultimately driving up the prices.

According to USA Today, used car prices are rising faster than the rate of inflation.

Considering how fast inflation has been rising in recent years, that’s saying a lot.

Since the demand for used cars is outpacing the supply, many people are competing for fewer vehicles.

Since it’s now a seller’s market, bidding on a used car can become very competitive.

People are used to making deals with dealerships and used car owners when they look to buy a car, especially a used car.

With used cars in greater demand, dealers are not nearly as willing to bargain with customers or even consider lowering their prices.

 

10. Supply Chain Issues

Auto Transport

 

Supply chain issues have affected a variety of industries since the Pandemic started.

What exactly is meant by the supply chain?

A supply chain is the network of people, organizations, and resources that are between someone selling a product and the consumer purchasing that product.

In simplest terms, it’s all the steps between the company selling the product and the person buying it.

Covid and worker shortages are two of the main problems contributing to supply chain issues.

Other issues might include higher fuel costs, which makes it more difficult to find someone to transport a car or a part necessary for a car.

It only takes one link in the supply chain to break down to disrupt the entire process.

Unless you’re buying a used car from a private seller who happens to live in the same area as you do, supply chain issues may be contributing to higher costs.

 

11. Chip Shortage

Selective focus of microchip in hands

 

The biggest reason used cars are so expensive, especially now, is that we are currently experiencing a global chip shortage.

A microchip or semiconductor chip is essentially the brain of many of the products we use today.

Why are we in the midst of a chip shortage?

There are lots of reasons for the shortages that have all occurred at the same time to create the perfect storm.

Chips are produced with silicon.

They are types of electric circuits that consist of a series of transistors.

These engineered components control the flow of electrons and fundamentally work as tiny switches.

Chips vary greatly in how complex the different types are.

For example, the chips that are embedded in most credit cards are a very basic type.

These types of chips are used as extra security for the card.

Chips are used in cars, smartphones, computer processors, and even electric toothbrushes.

This explains why the demand is so great.

The following are a few of the reasons there is currently a chip shortage.

  • The Covid Pandemic: As stated earlier, the pandemic shut down factories that made chips, cars, and many other items, but this wasn’t the only reason.
  • More Electronics: With more people working from home during the pandemic, there was a skyrocketing demand for chips in a variety of electronics such as home computers and laptops. Once they were up and running again, chip makers couldn’t keep up with the demand.
  • Chips are Complex: Semiconductors are technologically advanced and not easy to make. These items also take time to manufacture. Unless more factories are built and employees hired and trained, chips aren’t going to be produced any faster than they already are.

 

Tips For Buying A Used Car

 Car salesman giving the key of the new car

 

There are a few things you can do to save on your next used car.

 

1. Stay Flexible

You definitely should have something in mind regarding your price range and how low the mileage should be.

You can’t be too rigid, though.

If you find a solid car with low miles in your price range, you probably shouldn’t worry about the model, the color, or any extra features.

 

2. Look For Base Models

Upgraded versions of the same model will cost more than a vehicle with only the most basic features.

When deciding what type of car you’re looking for, make a list of only the features you must have.

Once you’re willing to cross features off your list, such as a moon roof, temperature-controlled seats, and onboard navigation, you’ll almost certainly be able to save quite a bit of money.

 

3. Consider A Certified Car

A certified pre-owned car is a low-mileage, gently used car that’s normally only a few years old.

It’s still technically a used car, but it’s probably going to be highly reliable since it’s been inspected and repaired to achieve an “almost new” condition.

Different car manufacturers will have various requirements regarding what meets the standard of a certified pre-owned vehicle.

Most, however, will be accident-free, have low miles, and come with a warranty from the manufacturer.

 

4. Increase The Down Payment

If at all possible, you’ll want to pay more than the minimum down payment.

This will likely improve your overall financing and decrease the interest rate you’re paying.

Of course, you always want to make sure you keep enough saved to be able to pay for plates, insurance, and other costs that are normally associated with car ownership.

 

Sources:

https://www.caranddriver.com/news/a38748092/new-car-average-sale-prices-47100/

https://www.whsv.com/2022/05/09/labor-supply-shortages-continues-impact-car-dealerships/

https://mechanicbase.com/market/auto-repair-labor-rates-per-hour/

https://news.un.org/en/story/2022/01/1109702

https://www.truecar.com/blog/why-are-cars-getting-bigger/

https://www.aptiv.com/en/insights/article/what-is-adas

https://www.ecfr.gov/current/title-16/chapter-I/subchapter-D/part-455

https://www.usatoday.com/story/money/cars/2022/02/13/used-cars-cost-more/6778705001/

https://cars.usnews.com/cars-trucks/semiconductor-shortage#:~:text=While%20the%20chip%20shortage%20can,in%20demand%20for%20other%20electronics.

https://cars.usnews.com/cars-trucks/what-does-certified-pre-owned-mean


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