Gavin McGrath, general manager at McGrath Chevyland, stands next to a row of 2023 Silverado pickups Wednesday at the dealership in northeast Cedar Rapids. McGrath said new-vehicle inventories have yet to reach pre-pandemic levels and that the used car market is tight, in part because fewer leased and rental cars entered that market during the pandemic. (Jim Slosiarek/The Gazette)
A.J. Perez stands in the showroom of Deery Brothers Motors on March 8 in Iowa City. Perez, the dealership’s owner, said the shortage of new cars during the pandemic sent car shoppers into the used car market, driving those prices up. (Nick Rohlman/The Gazette)
In the market for a good used car? A new model might be a better deal these days.
“Now, used vehicles are no cheaper than a new vehicle,” car shopper Christoph Trappe of Marion said. “Maybe I’m kind of cheap, but it seems a used vehicle isn’t any cheaper.”
Added Jason Cavey of Kalona, another car shopper: “If you find a vehicle with 30,000 miles on it, it’s almost the price of a new one. If you look at new, they want an upcharge on the sticker price.”
For years, savvy shoppers built their strategy around the assumption that a new car loses about 20 percent of its value in the first year and around 40 percent over five years. Bargain-hunters thus had a realistic chance of finding a late-model vehicle with relatively low mileage and some remaining warranty.
That calculation is among COVID’s casualties, although dealers and buyers think the market may be turning toward the pre-pandemic normal.
Maybe. Somewhat.
COVID impact
“It’s been a crazy three years,” said A.J. Perez, owner and dealer principal at Deery Brothers Motors of Iowa City. “There was a shortage of product on the new side with COVID and supply-chain problems. People who wanted something went to used, and car values went up.”
A.J. Perez, Deery Brothers Motors (Nick Rohlman/The Gazette)
“Over this winter, we definitely have seen a little correction,” said Gavin McGrath, general manager of McGrath Chevyland in Cedar Rapids.
“Still, if you compare that to what it was in 2019 or pre-COVID, there’s still really good value in used cars. I think (prices) will pop back up here going into tax time and carry through ’23.”
Used-car prices soared 45 percent in the year ending June 2021, according to Edmunds.com, which tracks auto industry inventory and pricing trends. The surge receded slightly last year, with prices dropping 8.8 percent through December.
“It’s still very much affected by supply-chain issues that started all the way back in 2020,” said Jennifer Blackhurst, business analytics professor and supply-chain expert at the University of Iowa’s Tippie College of Business.
Jennifer Blackhurst, UI professor
New car shortage
COVID-fueled disruptions upset both supply and demand for used vehicles. The pandemic shut down manufacturing across the automotive supply chain, cutting the supply of new vehicles by more than 10.5 million.
“There still is a new-car shortage,” McGrath said. “You would come here four years ago and pull onto our lot, and we’d have 300 to 400 Chevies at any given time. We have 85 (now).”
Uncertainty prompted rental companies to suspend purchases of new vehicles. That meant fewer former rentals going to the auctions where many dealers build their own inventories.
“The rental-car companies fed the new car market, and the rental companies weren’t ordering new cars,” Perez said. “There weren’t enough people going on vacation for a while.”
“The rental car companies are big influencers on those used (vehicle) auctions,” McGrath agreed.
Leased vehicles, another reliable supply for used-car auctions, also remain in short supply.
“When the vehicles come off lease from the leasing companies and the banks, they usually run them through an auction,” Perez said. “Dealers were bidding those cars up.”
New-car leases dropped by about a million after the pandemic’s onset, to 3.2 million in 2021, according to the U.S. Department of Transportation’s Bureau of Transportation Statistics. Most leases run three years, so that decline in supply is just starting to be felt at auction.
Used cars’ enhanced values have attracted speculators to the auction market, further inflating prices.
“You had people bidding on used cars who didn’t used to be in that business,” Perez said.
Also, spot shortages of the computer chips used in new vehicles, usually sourced from Asia, are expected to continue. That will force many new-car buyers to shop used.
“Cars are basically computers with engines and wheels,” UI’s Blackhurst said. “The chip manufacturers are saying it’s going to be 2024” before supplies stabilize.
“There are different contractors and different types of chips are running short at different times.” she said. “Tesla announced they’re rewriting software to use fewer chips.”
Patience is key
Patience will pay off for buyers, said Alexander Rogers, a concierge for online car-shopping service OneRequest. Based in Overland Park, Kan., the firm matches buyers with vehicles.
“People who are willing to wait have the opportunity,” he said. “Lately, we are finding prices on domestics close to pre-pandemic. There are still categories of vehicles that are difficult to find,” chiefly popular SUVs.
Cavey, who commutes once or twice a week from his home in Kalona to his job at Collins Aerospace in Cedar Rapids, said he’d like to find an electric or plug-in hybrid for the trip and considered buying a new Chevrolet Bolt.
“Nobody has any in stock,” he said.
Jason Cavey of Kalona stands with his Chevrolet Terrain outside Collins Aerospace on Wednesday in northeast Cedar Rapids. Cavey is shopping for a used electric or plug-in hybrid and is considering buying a new Chevrolet Bolt for his twice-a-week commute to his job in Cedar Rapids. (Jim Slosiarek/The Gazette)
A new Bolt typically takes six to nine months for delivery, meaning it might miss the deadline for the federal government’s $4,000 tax incentive for EVs under $25,000.
Cavey said he considered a 2-year old Nissan Leaf with a 250-mile range, but with 40,000 to 50,000 miles on the odometer, “that’s half the warranty eaten up. I’m really concerned about repairs.”
“My strategy now is to wait that (market) out unless a Bolt comes along,” Cavey said.
Trappe, who works from his Marion home as a content strategist for a Utah-based consulting firm, is looking for a late-model SUV for his wife, who’d then pass hers down to their teenage daughter.
He found a 2021 Chevrolet Trailblazer with 45,000 miles for just under $25,000. A new Trailblazer LT lists for just under $26,000.
“Why would I ever buy a used vehicle?” Trappe said. “Whenever we end up buying something, my guess is it will be a new vehicle.”
Christoph Trappe, Marion
Blackhurst, the UI professor, has dipped into the car market herself, seeking a vehicle for her household’s teenage drivers.
“It’s hard to find something reasonable,” she said. “It’ll be better this year, but it’s not going to be back to normal until 2024.”
Colin Mulholland tightens lug nuts after putting the tires back on a Chevrolet pickup Wednesday in the service center at Pat McGrath Chevyland in northeast Cedar Rapids. (Jim Slosiarek/The Gazette)
Donald Polton tightens the plug on the oil pan after changing the oil in a Chevrolet pickup Wednesday in the service center at Pat McGrath Chevyland in northeast Cedar Rapids. (Jim Slosiarek/The Gazette)
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