Dealer's Journal

What Caused the Used Car Boom of 2021?

Used Cars

Were you shopping for a vehicle in 2021? Then no doubt you experienced the frustration of depleted dealer inventory and high prices. And the pain extended to buyers looking for used cars. So, how did it get this way?

A Disaster No One Was Ready For

Businesses generally build a certain amount of disaster preparedness into their plans. But up until a couple of years ago, our collective vision of disaster preparation was more along the lines of fire, flood, and other natural disasters.

Sure, production plants and dealerships had to juggle shift coverage when employees got sick. But a pandemic locking the world down for months? That just wasn’t on anyone’s radar (unless they were an epidemiologist).

Lack of Parts = Lack of New Cars

After the initial shock of closing businesses faded, new problems emerged for the automobile industry. Car parts, including computer chips, weren’t being made with plants closed. Even more problematic was that microchip makers diverted their inventory toward home office equipment, cutting off semiconductor shipments to automakers.

As lockdown restrictions eased and automakers reopened assembly plants, they were confronted with a lack of auto parts. That forced automakers to prioritize restarting production on top sellers instead of less popular models. They also stopped offering several non-essential features—especially those that relied on microchips.

Auto production was at a crawl. At the same time, other industries were reopening, and folks went back to work. But with COVID-19 making mass transit less desirable, buyers headed to dealerships in droves.

The Impact of a Supply Chain Shortage on Used Car Sales

With new car inventory depleted and prices rising sharply due to demand, shoppers turned to the used car market. While the early birds got some great deals, the massive spike in demand sent prices skyrocketing. The result is used cars that are now selling for even more than their original MSRP.

And it isn’t just individual buyers feeling the pinch. Dealerships, who once kept their inventories well-stocked at auto auctions, are now finding themselves in bidding wars. National retailers, such as Carvana, are outbidding dealerships at online auctions. And car rental companies, unable to source new cars directly from manufacturers, have been buying used vehicles.

This is creating massive inventory headaches for dealerships and some budget gymnastics for used car shoppers. Even people with vehicle leases are opting to buy out their car rather than navigate the chaos of the used vehicle marketplace.

No Signs of Slowing Down

The market for used cars was wild in 2021, and it shows no sign of easing off in 2022. If you’re shopping for a vehicle in the foreseeable future, be prepared to budget more and adjust your expectations. If you’re willing to forego the latest cutting-edge technology, you may find more budget-friendly prices on older model used cars for sale.

And don’t forget your local dealerships. Even if you think online vendors have better pricing, many dealerships will work with you, and you’ll have a place to go if something goes wrong with the car. So plan ahead, pack your patience, and happy buying!

This post may contain affiliate links. Meaning a commission is given should you decide to make a purchase through these links, at no cost to you. All products shown are researched and tested to give an accurate review for you.

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