Cash in on used car prices by flipping one of these 15 models at the end of your lease

2014 Jeep Cherokee.
People who leased a 2018 Jeep Cherokee could flip it and pocket more than $7,000.

  • The pandemic has driven used-car prices sky-high.
  • Owners can cash in by buying their car at the end of a lease and flipping it to another dealer.
  • The models most ripe for profit include the Kia Forte and Jeep Compass, an iSeeCars study found.
  • See more stories on Insider’s business page.

It’s not just dealerships that are profiting from today’s insatiable appetite for used cars. Amid an unprecedented shortage of vehicles on dealer lots, sky-high prices, and a buying frenzy, car owners can cash in big too.

Pocketing thousands of dollars can be especially simple for people whose leases are expiring. At the beginning of a lease, the dealer sets the residual value of the vehicle: the agreed-upon price that a customer can buy the car for at the end of a lease term, often three years.

Today, used-car values are so inflated (for a host of pandemic-related reasons) that some lessees can turn an instant profit by buying back their leased vehicle and flipping it to another dealer. Dealerships starved for inventory are willing to pay top dollar for secondhand vehicles, especially lightly used cars with low miles.

According to automotive research outfit iSeeCars, the average three-year-old used car is worth 31.5% – more than $7,000 – above the residual value estimated at the start of its leasing term. Coupes, sedans, and pickups have seen the largest jumps in value, the site found.

iSeeCars analyzed nearly 10 million car sales to determine the 15 2018 models people should buy at the end of their lease to flip for the biggest profit. Check out the list below:

15. Ford Expedition

Ford Expedition 2018
Ford Expedition.

Increase over predicted residual value: 45.8% or $15,830

14. Nissan Versa

2018 Nissan Versa Sedan.
Nissan Versa.

Increase over predicted residual value: 46.1% or $3,961

13. Jeep Cherokee

2019 Jeep Cherokee
Jeep Cherokee

Increase over predicted residual value: 46.3% or $7,418

12. Jeep Compass

Jeep Compass

Increase over predicted residual value: 46.4% or $7,163

11. Kia Forte

Kia Forte 2020
Kia Forte.

Increase over predicted residual value: 46.7% or $4,913

10. Mazda Mazda6

2018 Mazda Mazda6.
Mazda Mazda6.

Increase over predicted residual value: 46.8% or $7,193

9. Hyundai Elantra

2017 Hyundai Elantra
Hyundai Elantra.

Increase over predicted residual value: 47.9% or $5,319

8. Chevrolet Malibu

2018 Chevrolet Malibu
Chevrolet Malibu.

Increase over predicted residual value: 48.2% or $6,392

7. Nissan Leaf

2018 Nissan Leaf
Nissan Leaf.

Increase over predicted residual value: 48.3% or $6,167

6. Chrysler 300

Chrysler 300 2018
Chrysler 300.

Increase over predicted residual value: 49.2% or $8,084

5. Volkswagen Passat

Volkswagen Passat
Volkswagen Passat.

Increase over predicted residual value: 49.3% 0r $6,400

4. Nissan Altima

Nissan Altima 2
Nissan Altima.

Increase over predicted residual value: 49.4% or $6,228

3. Chevrolet Camaro

2018 Chevrolet Camaro
2018 Chevrolet Camaro.

Increase over predicted residual value: 52.9% or $12,346

2. Dodge Charger

2017 Dodge Charger
Dodge Charger

Increase over predicted residual value: 55.9% or $11,806

1. Volkswagen Tiguan

2019 Volkswagen Tiguan
Volkswagen Tiguan.

Increase over predicted residual value: 61.3% or $8,677

Read the original article on Business Insider

Used car prices are finally cooling off, but it still won’t be easy to buy one

car dealer
The old-fashioned way to buy a car.

  • Used vehicle prices went up just 0.2% last month after three months of record increases.
  • The price is still up more than 40% over last year, US government data show.
  • Actual relief may be a long way off due to supply challenges in the new car market.
  • See more stories on Insider’s business page.

The used vehicle market is finally showing signs of leveling off after three consecutive months of record price increases, data from the US government’s latest monthly inflation report show.

The average price for used cars and trucks ticked up just 0.2% in July, barely moving after June’s 10.5% spike was responsible for a third of the overall rise in inflation.

But even though the picture didn’t get worse for car shoppers, it didn’t get any better either – and it might not improve for a while yet.

Read more: Hot EV startups like Rivian were already struggling to get cars to market – then the chip shortage hit. 4 top execs and industry experts tell us how they’re tackling the crisis.

Depending on who you ask, average used vehicle prices are still up nearly 42% over last year (according to the Feds), or 23.6% (according to the Manheim Index), which means that used Ford Escape SUV that might have gone for $17,000 will run now you between $21,000 and $25,000.

That leaves a lot of room before prices return to familiar territory, and there are a few reasons that could take some time.

For starters, one reason prices have softened is that fewer people bought used cars last month than normally do. Cox Automotive estimates sales were down about 15% in July from the same month last year.

In other words, it’s likely there was less competition between customers to drive prices up. When shoppers do return to dealers’ lots at normal levels, it’s not entirely clear where the inventory will come from since there’s no such thing as a used-car factory.

Normal used retail supply is typically around 44 days worth of inventory, meaning that dealers have enough cars in stock to sell for a month and a half. July ended with 39 days’ supply.

The problems in the new vehicle market continue to cause ripple effects, most notably from the lack of semiconductor chips needed to make modern cars go.

“This ‘two steps forward, one step back’ path toward increased semiconductor availability and light vehicle production is likely to limit the pace at which used vehicle prices decline,” JPMorgan autos analyst Ryan Brinkman wrote in a research note.

New vehicles meanwhile continued their price increases with another 1.7% bump last month for a year-over-year increase of 6.4%, according to the inflation report. Since all used vehicles begin their lives as new vehicles, those higher new prices are likely to get baked into their eventual cost.

Another (related) reason for the constrained supply is that rental companies like Avis and Hertz are hanging onto cars longer instead of selling them into the used market.

A decade ago, 30,000 miles on a rental car was considered high. Last year, the mileage averaged around 50,000. Last month, that number hit 88,000, according to Manheim. Plus, those units sold for 6% more this year than last year.

“Even in six months, you’re still going to be facing some type of slightly appreciated prices, just because there’s so much demand that’s going unfulfilled right now,” Ivan Drury, senior manager of insights at Edmunds, said,

New-car prices will have to come down before any real improvement will arrive in the used market, he said. Until then, buyers shouldn’t hold their breath.

Read the original article on Business Insider

Car dealers reveal the new normal for buyers, from zero haggling and non-refundable deposits to sight-unseen purchases

A man looks at his phone on the hood of an SUV at a car dealership
A confluence of factors has upended the market for used and new cars in the past year, drastically changing how Americans buy cars.

  • The pandemic has thrown the market for new and used cars totally out of whack.
  • Cars are flying off of lots as quickly as manufacturers can produce them, and prices are sky-high.
  • The buying frenzy has people pouncing on cars they never would have considered before.
  • See more stories on Insider’s business page.

Cameron Johnson, a fourth-generation car dealer with nine franchises in Virginia, was taught growing up that every morning when a dealer wakes up, their used inventory is worth less than it was the night before.

But in today’s absurd car market, that wisdom isn’t holding up.

A buying frenzy coupled with an historic shortage of vehicles on lots has sent used-car values soaring nearly 30% since last June, according to Edmunds’ automotive research. Over the last six months, Johnson’s Magic City Auto Group has raised prices consistently, and the buyers just keep rolling in.

“I’ve definitely never seen this,” he told Insider. “And I think if you had a group of the smartest people in a room a year ago, no one would have predicted this.”

A massive shortage of computer chips has devastated car manufacturing for months, choking off the supply of new vehicles to dealers. High markups and scant options from assembly lines are fueling a boom in secondhand sales, chipping away at used inventories and driving prices skyward.

Rental-car companies that pared down their fleets when travel ground to a halt in 2020 have resorted to hoarding used vehicles. Meanwhile, low interest rates, a strong economic recovery, and fluctuating travel habits have kept consumer demand high.

It’s completely upended the way car dealers do business.

Lee Walls, a salesman at Grainger Honda in Savannah, Georgia, told Insider his dealership would typically have between 300 and 400 new cars either on the lot or on their way there. Now, he’s down to about 60.

These days, most new Hondas destined for Grainger’s showroom are sold before they even hit the lot – and they’re selling at or near MSRP. The dealership has changed its policy to make deposits non-refundable since so many buyers are clamoring for new cars.

Read more: Here’s how EV startups like Rivian are tackling the chip shortage that’s wreaking havoc for major automakers

At Magic City Auto Group’s stores, too, cars are snatched up practically as quickly as manufacturers can ship them over. Margins are up and profits are solid, but the money is short-term, Johnson says.

“We’re selling them faster than we can get them, which in a normal world would sound like a great problem,” he said. But he’d readily give up the extraordinary margins for more volume, which keeps salespeople happier and creates more downstream revenue from service and trade-ins.

Everything is selling

With popular models so expensive and hard to come by, shoppers have been loosening their budgets and pouncing on vehicles they wouldn’t have considered before.

Arizona-based Lifted Trucks – which takes used SUVs and pickups, jacks them up anywhere from two to eight inches, puts new wheels and tires on, and sells them through four locations across the state – has broken a sales record nearly every month since May 2020.

Many of its recent customers weren’t seeking out a lifted pickup, they simply couldn’t find the model they were after anywhere else, Chad Staples, the company’s corporate director of training and recruiting, told Insider.

Pickups sold by Lifted Trucks in Arizona
Lifted Trucks has seen record sales and profits over the last year.

Moreover, vehicles that would’ve languished on Lifted Trucks’ lots in normal times – ones with oddball paint jobs like banana yellow, orange, bright neon green, or Tiffany blue – are selling like hotcakes, Staples said. Desperate buyers are coming from farther away than ever, with one recent customer driving his trade-in from Pennsylvania.

Amid the insanity, margins are up around 30%, Staples said.

Car owners cash in

Dealers aren’t the only ones benefiting from the insatiable appetite for used cars. Used-car owners are cashing in big on rising values.

The average price paid for a trade-in has shot up 75% year-over-year to around $21,200, according to Edmunds. Some car owners stand to make a killing, particularly if they have a vehicle they don’t need. Staples, for his part, said Lifted Trucks has bought back numerous customers’ vehicles for more than it initially sold them for.

Those with leased cars are making out like bandits, too. Peoples’ off-lease vehicles, in many cases, are worth significantly more now than the buyout price they set in their contract years earlier, meaning lessees can essentially flip their leases to another dealer for an instant profit. Johnson, of Magic City, said he helped a recent customer buy out a lease for $40,000, then took the car in on trade for $48,000.

Some people have been making monthly payments and putting miles on cars that aren’t even depreciating in value, Johnson said. “It’s bizarro world,” he said.

New-vehicle supply will only begin to improve toward the end of this year, according to forecaster LMC Automotive, so it could be quite a while before the market evens out. Johnson, for one, believes the pandemic may have changed car buying and selling permanently, as manufacturers realize they can ship out smaller numbers of vehicles with lower incentives.

“I don’t think you’re going to go back to seeing 900 cars on our lot anytime soon,” he said. “The days of coming onto a lot and seeing 50 different Explorers to choose from are far away, if ever.”

Are you a car dealer, owner, or private seller with a story to share about what it’s like to buy and sell cars right now? Contact this reporter at tlevin@insider.com

Read the original article on Business Insider

Auto dealers say today’s red-hot market is a ‘bizarro world’ unlike anything they’ve ever seen – with cars selling before they hit the lot and clunkers worth more than ever

Lincoln SUVs at a dealership.
Car dealers told Insider they’ve never seen a market like today’s.

  • The pandemic has thrown the market for new and used cars totally out of whack.
  • Cars are flying off of lots as quickly as manufacturers can produce them, and prices are sky-high.
  • The buying frenzy has people pouncing on cars they never would have considered before.
  • See more stories on Insider’s business page.

Cameron Johnson, a fourth-generation car dealer with nine franchises in Virginia, was taught growing up that every morning when a dealer wakes up, their used inventory is worth less than it was the night before.

But in today’s absurd car market, that wisdom isn’t holding up.

A buying frenzy coupled with an historic shortage of vehicles on lots has sent used-car values soaring nearly 30% since last June, according to Edmunds’ automotive research. Over the last six months, Johnson’s Magic City Auto Group has raised prices consistently, and the buyers just keep rolling in.

“I’ve definitely never seen this,” he told Insider. “And I think if you had a group of the smartest people in a room a year ago, no one would have predicted this.”

A massive shortage of computer chips has devastated car manufacturing for months, choking off the supply of new vehicles to dealers. High markups and scant options from assembly lines are fueling a boom in secondhand sales, chipping away at used inventories and driving prices skyward.

Rental-car companies that pared down their fleets when travel ground to a halt in 2020 have resorted to hoarding used vehicles. Meanwhile, low interest rates, a strong economic recovery, and fluctuating travel habits have kept consumer demand high.

It’s completely upended the way car dealers do business.

Lee Walls, a salesman at Grainger Honda in Savannah, Georgia, told Insider his dealership would typically have between 300 and 400 new cars either on the lot or on their way there. Now, he’s down to about 60.

These days, most new Hondas destined for Grainger’s showroom are sold before they even hit the lot – and they’re selling at or near MSRP. The dealership has changed its policy to make deposits non-refundable since so many buyers are clamoring for new cars.

Read more: Here’s how EV startups like Rivian are tackling the chip shortage that’s wreaking havoc for major automakers

At Magic City Auto Group’s stores, too, cars are snatched up practically as quickly as manufacturers can ship them over. Margins are up and profits are solid, but the money is short-term, Johnson says.

“We’re selling them faster than we can get them, which in a normal world would sound like a great problem,” he said. But he’d readily give up the extraordinary margins for more volume, which keeps salespeople happier and creates more downstream revenue from service and trade-ins.

Everything is selling

With popular models so expensive and hard to come by, shoppers have been loosening their budgets and pouncing on vehicles they wouldn’t have considered before.

Arizona-based Lifted Trucks – which takes used SUVs and pickups, jacks them up anywhere from two to eight inches, puts new wheels and tires on, and sells them through four locations across the state – has broken a sales record nearly every month since May 2020.

Many of its recent customers weren’t seeking out a lifted pickup, they simply couldn’t find the model they were after anywhere else, Chad Staples, the company’s corporate director of training and recruiting, told Insider.

Pickups sold by Lifted Trucks in Arizona
Lifted Trucks has seen record sales and profits over the last year.

Moreover, vehicles that would’ve languished on Lifted Trucks’ lots in normal times – ones with oddball paint jobs like banana yellow, orange, bright neon green, or Tiffany blue – are selling like hotcakes, Staples said. Desperate buyers are coming from farther away than ever, with one recent customer driving his trade-in from Pennsylvania.

Amid the insanity, margins are up around 30%, Staples said.

Car owners cash in

Dealers aren’t the only ones benefiting from the insatiable appetite for used cars. Used-car owners are cashing in big on rising values.

The average price paid for a trade-in has shot up 75% year-over-year to around $21,200, according to Edmunds. Some car owners stand to make a killing, particularly if they have a vehicle they don’t need. Staples, for his part, said Lifted Trucks has bought back numerous customers’ vehicles for more than it initially sold them for.

Those with leased cars are making out like bandits, too. Peoples’ off-lease vehicles, in many cases, are worth significantly more now than the buyout price they set in their contract years earlier, meaning lessees can essentially flip their leases to another dealer for an instant profit. Johnson, of Magic City, said he helped a recent customer buy out a lease for $40,000, then took the car in on trade for $48,000.

Some people have been making monthly payments and putting miles on cars that aren’t even depreciating in value, Johnson said. “It’s bizarro world,” he said.

New-vehicle supply will only begin to improve toward the end of this year, according to forecaster LMC Automotive, so it could be quite a while before the market evens out. Johnson, for one, believes the pandemic may have changed car buying and selling permanently, as manufacturers realize they can ship out smaller numbers of vehicles with lower incentives.

“I don’t think you’re going to go back to seeing 900 cars on our lot anytime soon,” he said. “The days of coming onto a lot and seeing 50 different Explorers to choose from are far away, if ever.”

Are you a car dealer, owner, or private seller with a story to share about what it’s like to buy and sell cars right now? Contact this reporter at tlevin@insider.com

Read the original article on Business Insider

There is a fundamental misunderstanding of inflation and its spread throughout sectors of the economy proves it is not isolated or transitory, Mohamed El-Erian says

Mohamed El-Erian, Chief Economic Adviser of Allianz appears on a segment of "Mornings With Maria" with Maria Bartiromo on the FOX Business Network on April 29, 2016 in New York City.
Mohamed El-Erian.

  • Mohamed El-Erian said there is a fundamental misunderstanding of inflation because few people have lived through it.
  • “I always laugh when people say, oh, it’s isolated, it’s transitory,” El-Erian told CNBC on Monday.
  • He also disagreed with the Federal Reserve’s view that inflation is transitory.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

Economist Mohamed El-Erian in an interview Monday took aim at assessments of inflation that describe rising prices as “transitory,” stating that there is a fundamental misunderstanding of what inflation is and how it is already spreading throughout the economy.

“I always laugh when people say, oh, it’s isolated, it’s transitory,” Allianz’s chief economic adviser told CNBC. “I think there’s a fundamental misunderstanding about inflation today because … most people haven’t lived through it for a long time and certainly most traders on Wall Street haven’t traded through it.”

El-Erian pointed to the surge in used cars prices to their highest in more than 60 years, which has been followed by an increase in prices of new cars, and a rise in the price of rental cars. This, he said, shows inflation is not contained.

“There is a logic to these inflation chains. They take time, and most people, unfortunately, haven’t seen them,” El-Erian told CNBC. “So they think everything’s isolated. Actually, it’s not. It’s interconnected.”

El-Erian, who is also the president of Queens’ College, Cambridge University, countered the longstanding narrative of the Federal Reserve that inflationary pressures are temporary.

The central bank slashed rates to historic lows at the start of the pandemic to stimulate economic activity and has signaled its intention of keeping interest rates unchanged until 2023.

Fed Chair Jerome Powell has repeatedly said that inflation will pass as the economy settles into a new normal. However, updated rate-hike projections six weeks ago signal that the central bank could see inflation posing a larger risk than initially thought. Powell is expected to issue a new statement this week, on July 28 at 2 p.m. ET.

“I don’t expect fireworks, El-Erian said. “The Fed has adopted a new framework that is backward-looking. They’re no longer forecast-based; they’re outcome-based.”

El-Erian also maintained that inflation will continue to run higher.

“The big question for me is not whether inflation will be higher than what the Fed expects,” he told CNBC. “It is whether the system is wired loosely enough to adjust to that – and that’s what we going to learn.”

The Consumer Price Index rose 0.9% between May and June, much more than the consensus estimate of 0.5%.

Read the original article on Business Insider

Car dealerships have turned ‘cutthroat’ amid a buying frenzy and dwindling car inventories

Car Dealership
The pandemic has upended the market for new and used cars.

  • The frenzied car market is pitting car salespeople against one another, Bloomberg reported.
  • New and used car prices have skyrocketed during the pandemic amid a shortage of vehicles.
  • Some dealers are even shelling out to buy leased vehicles years before the end of their term.
  • See more stories on Insider’s business page.

The pandemic has upended the market for new and used cars, sending prices skyrocketing and inventories dwindling.

A buying frenzy – coupled with soaring prices and a historically low supply of vehicles – has turned car salespeople into enemies, one dealership employee told Bloomberg.

“It’s really cutthroat,” Jared Luner, a salesman at Columbia Honda in Missouri, told the outlet. “Normally we’re all friends and coworkers, but right now, when someone pulls up, it’s a little edgy.”

Luner said he recently had a fellow salesperson sell a vehicle out from under him. Hawking cars was always a tricky business, but now, as dealers suffer from a devastating lack of inventory of both new and used vehicles, there aren’t as many sales to go around.

In June, new-car inventories stood at less than half of 2019 levels, according to Cox Automotive. And the crunch is only getting worse as a global shortage of computer chips continues to force automakers to idle production lines and slash manufacturing targets.

Mark Scarpelli, who owns two Chevrolet dealerships in the Chicago area, recently told The New York Times his lots typically have between 600 and 700 cars. Now, he’s down to around 50.

While the chip shortage directly impacts the supply of new vehicles, it’s also bringing a new wave of customers to the used market, slashing inventories and driving prices skyward. This is all happening as demand for cars remains strong, due in part to low interest rates, a robust economic recovery, and travel habits that are still in flux due to the pandemic.

The insane market has pushed dealers toward increasingly crafty methods of obtaining used cars to sell.

Dealers are so strapped for inventory that they’re calling up lessees – no matter whether they sold the vehicle or not – and offering to buy leased vehicles for high markups, Ivan Drury, senior manager of insights at Edmunds, told Insider.

“They’re being contacted right now and being told: ‘You can sell that. We will not just pay the buyout price. We’ll pay all your payments and hand you a check on top of that,” Drury said. “Dealers are very desperate for inventory. They’re willing to make those payments, pay that buyout price, and get that piece of inventory back.”

The supply crunch is so dire that Drury has heard of people who are less than a year into a three-year lease being contacted by dealers. Since used-car values are so astronomical right now and many people haven’t been putting as many miles on their vehicles, those who are able to part with a lease stand to make a killing selling it to a dealer or online retailer, he said.

“You actually stand to make money in that situation because supply is just so drained,” Drury said. “There’s a lot of power for someone who currently owns a vehicle.”

Are you a car dealer, owner, or private seller with a story to share about what it’s like to buy and sell cars right now? Has a dealer offered to buy your used or leased car? Contact this reporter at tlevin@insider.com

Read the original article on Business Insider

Used car prices jumped at the fastest rate on record last month, but there’s hope on the horizon

used car
Used car prices increased 10.5% in June.

  • Used cars and trucks were 10.5% more expensive in June than in May.
  • That’s the biggest increase since the Bureau of Labor Statistics started tracking in 1953.
  • Used cars have been a major cause of higher price inflation over the last few months.
  • See more stories on Insider’s business page.

If you’re in the market for a used car or truck, get ready to pay a lot.

The Bureau of Labor Statistics’ monthly Consumer Price Index release showed that inflation in June was much higher than economists had expected. One of the biggest contributors to overall prices rising was the 10.5% increase in used car and truck prices between May and June.

Looking at changes over the last year, used cars in June 2021 were 45.2% more expensive than in June 2020.

New cars also got more expensive, with prices increasing 2.0% between May and June, but those prices have been going up much more slowly than for used cars.

The whopping jump in used car prices was the biggest monthly increase since the Bureau of Labor Statistics started tracking these figures in 1953. It follows two other historically high monthly increases of 7.3% in May and 10.0% in April.

The used car market has gotten so upended that several models are now cheaper to buy new than used.

There are several reasons for the massive jumps in used car prices over the last few months. A global semiconductor shortage has left automakers without the computer chips needed to make new cars, cutting off supplies of new cars.

Rental companies sold off large swathes of their fleets last summer amid collapsing demand during the pandemic. Now that demand has come back, those companies are stocking back up, including turning to the used car market themselves and competing with regular consumers.

Despite the huge price increases of the last few months, relief could be on its way. Insider’s Tim Levin noted that according to Cox Automotive, wholesale car prices declined between May and June, and retail prices could follow.

Similarly, NPR’s Scott Horsely reported that “prices dealers pay for used cars at massive auctions across the country finally dipped in June.”

A research note from Morgan Stanley also predicted that as the auto market gradually returns to normal, “looking ahead we should see used car price increases begin to the decelerate as more recent industry data has started to turn modestly lower.”

But for now, used cars are still quite expensive.

Read the original article on Business Insider

How a perfect storm of shortages and rental car chaos sent used-car prices skyrocketing

Cars sit outside a used car dealership with spray paint on the windows advertising the vehicles.
Used car and truck dealers have bought models for more than their original sticker price.

  • Used-car prices have skyrocketed over the last year.
  • A supply crunch in new cars is spurring demand for used models.
  • Prices may not return to normal for at least a year, one expert told Insider.
  • See more stories on Insider’s business page.

If you’re looking to get a sweet deal on a used car to take advantage of the warm summer weather, it’s not going to happen.

The market for secondhand cars is absurdly and unprecedentedly hot right now. Used vehicles went for a whopping 40% more in June than they did before the pandemic in February of 2020, according to data from JPMorgan.

The average nine-year-old car changed hands for $13,250 in June, according to automotive research site Edmunds. That’s a 30% hike over the same month in 2020, while a five-year-old vehicle will run you a staggering $24,000 – up more than $6,000 from a year ago.

The insanity all comes down to simple economics: demand for used cars far outweighs their supply, pushing prices higher and higher. But the reasons for scant inventories and such high interest in used cars get a bit more complicated.

Why are used cars so expensive right now?

The market for used cars is deeply intertwined with the market for new ones, says Kayla Reynolds, an analyst at Cox Automotive. The latter is going through a rough patch, and those troubles are trickling down into the used market.

A devastating shortage of microchips – which are necessary for all manner of critical electrical components – is slowing car production worldwide, choking the supply of new models and driving their prices skyward. High dealer markups and a lack of options are forcing more buyers to shop secondhand, chipping away at used-car inventories, Reynolds said.

To put the magnitude of this shortage into perspective, new-car inventory in the US was down 54% in June as compared to the same month in 2019, according to Cox. Dealer incentives have plummeted and transaction prices for new cars have hit all-time highs as a result.

That’s bringing a whole new set of customers to the used market, people who were prepared to spend serious money on a brand-new set of wheels and are, in turn, driving up used-car prices, says Ivan Drury, senior manager of insights at Edmunds.

Read more: Meet 9 former Tesla execs who left Elon Musk to become power players at rivals like Apple and Rivian

A drop in new cars rolling off assembly lines has upended the flow of vehicles to and from rental agencies, which are typically a major source of used inventory. Rental companies, which sold off cars en masse during the pandemic, usually buy some 2 million new cars every year and turn them over every 1-2 years, Drury said.

With travel surging back, they’ve resorted to snatching up used cars – and they’re not giving them up.

Moreover, with new-car prices through the roof, people are holding onto their aging vehicles longer instead of trading them in, cutting off the flow of cars onto the used market. For the same reason, they’re opting to buy their leased vehicles at the end of the term, rather than swap them in for a new lease.

When will the madness end?

There is good news. Prices seem to have peaked in May and are heading back to Earth.

Between May and June, wholesale car prices declined for the first time since December, suggesting that demand and supply are on a path toward some kind of equilibrium, Cox’s Reynolds said.

She expects that retail prices will soon follow, and that shoppers will start to notice prices on car lots gradually dropping by the fall. The pandemic-induced car-buying frenzy tapering off partially explains the shift, she said.

But the supply crunch brought on by the chip shortage isn’t going away anytime soon, meaning it could be quite a while before shoppers see used-car prices they’re accustomed to. Even once new models are back in stock, the secondhand market won’t snap back to normal overnight, Drury said.

His advice to car buyers: “I’d say give it at least six months. And in all honesty, if you can hold off for an entire year, you’re better off with that.”

Are you a car dealer, buyer, or private seller with a story to share about what it’s like to buy and sell cars in this red-hot market? Contact this reporter at tlevin@insider.com

Read the original article on Business Insider

A supply crunch has sent used car prices sky high. These 16 models are now worth more used than new

2020 Kia Telluride.
A new Kia Telluride costs close to $4,000 less than a used one – if you can find one.

  • Car dealers are facing a supply crunch that’s caused used car prices to go through the roof.
  • Some 2019 and 2020 cars are cheaper to buy new right now, according to a study from iSeeCars.
  • The Kia Telluride now costs $3,564 more to buy used than new.
  • See more stories on Insider’s business page.

Skipping a brand-new car for one that’s lightly used has always been the most wallet-friendly way of going about things. Not anymore.

In the strange and sometimes utterly backward-seeming times we’re living in, it’s actually cheaper to buy some cars new rather than second hand. A recent study from automotive research site iSeeCars.com identified 16 such vehicles, some of which cost thousands more to buy used.

The pandemic has led to a diminished supply of cars and an outsize demand for them, the result being that used vehicle prices are through the roof. Amid financial uncertainty, people have been hanging onto their cars longer, choking one of the key pipelines of used cars to dealers. Meanwhile, an ongoing shortage of microchips has hampered car production globally and slashed the supply of new models.

The result, according to iSeeCars.com’s analysis of some 470,000 2019- and 2020-model-year cars listed for sale in June, is that the gap between used- and new-car prices have shrunk considerably in recent months. In early November, the average lightly used car cost nearly 11% less than its new counterpart. In June, that gap closed to just over 3%.

Some especially popular models – ones that are hard to find new right now – cost thousands more than their MSRP on the second-hand market. See the list of 16 vehicles below:

1. Kia Telluride

2020 Kia Telluride_13
2020 Kia Telluride.

  • Average price new: $44,166
  • Average price used: $47,730
  • Difference: 8.1%; $3,564

2. GMC Sierra 1500

2020 GMC Sierra Denali
GMC Sierra Denali.

  • Average price new: $54,205
  • Average price used: $57,671
  • Difference: 6.4%; $3,466

3. Toyota Tacoma

Toyota Tacoma
The Toyota Tacoma.

  • Average price new: $37,902
  • Average price used: $39,857
  • Difference: 5.2%; $1,955

4. Mercedes-Benz G-Class

mercedes-benz g wagen g550
The Mercedes-Benz G550.

  • Average price new: $182,631
  • Average price used: $190,078
  • Difference: 4.1%; $7,447

5. Toyota Rav4 Hybrid

Toyota RAV4 hybrid
Toyota Rav4 Hybrid.

  • Average price new: $34,995
  • Average price used: $36,352
  • Difference: 3.9%; $1,357

6. Toyota Tundra

 2020 Toyota Tundra
2020 Toyota Tundra.

  • Average price new: $49,643
  • Average price used: $51,474
  • Difference: 3.7%; $1,831

7. Dodge Challenger

2020 Dodge Challenger sports car
2020 Dodge Challenger R/T Scat Pack.

  • Average price new: $39,375
  • Average price used: $40,764
  • Difference: 3.5%; $1,388

8. Toyota 4Runner

2019 Toyota 4Runner
Toyota 4Runner.

  • Average price new: $45,382
  • Average price used: $46,867
  • Difference: 3.3%; $1,485

9. Hyundai Palisade

2020 Hyundai Palisade.
2020 Hyundai Palisade.

  • Average price new: $44,063
  • Average price used: $45,356
  • Difference: 2.9%; $1,293

10. Tesla Model 3

tesla model 3
Tesla Model 3.

  • Average price new: $44,409
  • Average price used: $45,677
  • Difference: 2.9%; $1,268

11. Honda Civic

2019 Honda Civic Sedan Touring
2019 Honda Civic Sedan Touring.

  • Average price new: $26,331
  • Average price used: $27,058
  • Difference: 2.8%; $727

12. Dodge Charger

Dodge Charger
Dodge Charger.

  • Average price new: $38,977
  • Average price used: $39,874
  • Difference: 2.3%; $897

13. Honda Odyssey

2019 Honda Odyssey
Honda Odyssey.

  • Average price new: $37,612
  • Average price used: $38,048
  • Difference: 1.2%; $435

14. Kia Rio

2020 Kia Rio subcompact sedan.
2020 Kia Rio.

  • Average price new: $17,346
  • Average price used: $17,472
  • Difference: 0.7%; $127

15. Subaru Crosstrek

2020 Subaru Crosstrek Premium
2020 Subaru Crosstrek Premium.

  • Average price new: $29,474
  • Average price used: $29,642
  • Difference: 0.6%; $168

16. Subaru WRX

Subaru WRX
Subaru WRX.

  • Average price new: $34,487
  • Average price used: $34,568
  • Difference: 0.2%; $81
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Some second-hand trucks now cost more than their original sticker price in a red-hot market – a 2-year-old Toyota Tacoma went for $1,000 more than its price when new

Cars sit outside a used car dealership with spray paint on the windows advertising the vehicles.
Used car and truck dealers have bought models for more than their original sticker price.

  • Used trucks have been sold for above their original sticker price in a red-hot market, Fox Business reported.
  • A supply crunch from factory closures and worldwide chip shortages for new vehicles have contributed to price rises.
  • But prices have climbed at a slower rate this week, according to vehicle data site Black Book.
  • See more stories on Insider’s business page.

Some car dealers have sold used trucks for more than the original sticker price thanks to rocketing demand and a global shortage of chips needed to make new cars, Fox Business reported.

Used vehicle prices have risen by an average of 30% over the past year, according to automotive data site Black Book, per Fox Business.

Alex Yurchenko, Black Book’s senior vice president of data science, told Fox Business that he had found 73 models of vehicles between one and three years old that were being sold to dealers at auctions for more than their original price.

“The market is very strange right now,” Yurchenko told Fox Business. “Dealers need the inventory, so they are paying lots of money for their vehicles on the wholesale market.”

A vehicle’s sticker price is the manufacturer’s recommended price for retailers.

While many of the models were high-value trucks and SUVs, such as the Ford F-150 Raptor pickup, Yurchenko told Fox Business that he found modestly priced vehicles sold above their sticker price, too. For example, Yurchenko found a 2019 Toyota Tacoma SR double cab pickup, originally priced at $29,000, going for nearly $1,000 more in 2021, Fox Business reported.

“Before we get through this, prices for many mainstream vehicles will get closer to their manufacturer’s suggested retail price,” Yurchenko told Fox Business.

The inflated prices are thanks to vehicle supply shortages caused by factory closures last year, a global shortage of automotive chips, and strong demand in the vehicle market, which is even leading to some sellers making a profit on cars with broken engines.

Used vehicle prices climbed 7.3% in May, and used vehicle price rises accounted for about one-third of overall inflation, according to data from the Bureau of Labor Statistics.

And used vehicle prices have also soared across the Atlantic – the UK’s Vehicle Remarketing Association (VRA) reported double-digit price increases over the past few months, and predicted that prices will rise further.

“We are in a kind of ‘perfect storm’ where stock is in very short supply, demand is high, and buyers are ready to spend freely,” VRA chair Philip Nothard said. Nothard said that dealers are also happy to sell older vehicles than they would’ve done previously.

The increase in used vehicle prices in the US has started to slow, with used cars climbing 0.75% last week – the lowest weekly rise in 17 weeks, Black Book told Fox Business.

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