Cheap used cars are vanishing.
With new-car production constrained by pandemic-related parts shortages and with used-car prices soaring, more Americans are hunting everywhere for inexpensive rides. As a result, the number of vehicles available for less than $10,000 is dwindling.
“I don’t know where you go for cheap transportation if you’re really strained financially,” said Michelle Krebs, executive analyst at car-buying site Autotrader.
The number of available vehicles costing up to $15,000 on used car lots totaled 17,182 in June, according to Cox Automotive, which owns Autotrader and Kelley Blue Book. That compares with 653,948 vehicles available in the price range of $15,000 to $20,000 and 379,070 available in the range of $20,000 to $25,000.
And the cheap cars that are available are selling faster than anything else on the market.
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Vehicles under $10,000 are taking an average of 23.6 days to sell, compared with an average of 36.1 days for all used models, according to Cox. Those vehicles average more than 128,000 miles on the odometer.
The older – and cheaper – the model, the fewer there are. In June 2020, vehicles from the model year 2014 or older accounted for about 32.3% of used vehicles for sale. In June 2021, it was 27.8%.
"This lack of older model, high-mileage vehicles is helping push the average list prices upward and well into record territory," according to an analysis from Cox Automotive experts.
Why are used-car prices rising?
The auto industry is struggling to keep up with demand for new vehicles due to a faster-than-expected economic recovery and a semiconductor chip shortage. That, combined with tech improvements and a movement toward larger, more expensive rides, is making new and lightly used vehicles unaffordable for many.
In the period of April-June of 2021, the price paid for a new vehicle averaged $40,827, up 5% from a year earlier and a new record, according to car-research site Edmunds.
Over the same period, the transaction price for a used vehicle averaged $25,410, up 11% from January through March and 21% above the April-June period of 2020.
In many cases, the price gap between new and used vehicles has evaporated.
In fact, the average lightly used car cost only 3% less than a new model of the same vehicle in the first half of June, according to car research site iSeeCars.
Great Recession impact
During the Great Recession, which took place in 2008 and 2009, car sales plummeted and then took years to recover to normal levels.
New-vehicle sales dropped from 16 million in 2007 to 13.1 million in 2008. Then they totaled 10.3 million in 2009, 11.5 million in 2010 and 12.7 million in 2011. It wasn't until 2014 that sales topped the 16 million mark again.
The upshot is that the number of vehicles in the model years 2009 through 2012 – the types of vehicles that likely would have 100,000 miles or more by now – is much lower than it would have been in normal times.
"We have a natural shortage from the Great Recession because they would be older vehicles" by now, Krebs said.
'Cash for clunkers' casts long shadow
Another legacy of the Great Recession is the so-called "cash for clunkers" program, which Congress authorized in 2009 to incentivize Americans to trade in older fuel-guzzling vehicles and buy new, fuel-efficient models. More than 600,000 people took advantage of the program.
But there was a catch: the older vehicles had to be scrapped. This means fewer cheaper models from the late 1990s and early 2000s still sputtering around today, Krebs noted.
That might have been good for the environment. But it also means "a lot of cars were taken out of the market,” Krebs said.
Rental car companies warp market
When travel ground to a halt in 2020, rental car companies, facing an existential crisis, sold off many of their vehicles to shore up their finances.
“Just like new-car demand, rental-car demand came back faster than the companies thought, and the car companies are not selling to them (to rental-car companies) because they can make a better profit by selling to retail customers,” Krebs said.
That’s what’s leading to the shortage of vehicles and sky-high prices at rental car agencies.
“Now the rental car companies are out there trying to buy used cars,” Krebs said.
No, they’re not buying cheap, high-mileage vehicles. But they are contributing to increasing prices of lightly used vehicles, which is forcing many shoppers to buy older models than they would otherwise want.
Americans hang onto used cars
The average age of vehicles on the road has reached an all-time high of more than 12 years, according to research firm IHS Markit, which releases an annual report on the issue.
That’s in part because vehicle reliability has improved, meaning cars last longer. Gone are the days when passing the 100,000-mile mark meant a vehicle was on its last legs.
It’s also in part because vehicle prices have increased so much that people need to hold onto their cars longer to justify the price they paid.
What’s more, the average owner of an older, high-mileage vehicle might not be able to afford something else right now.
“Think about the people who own those – they were probably hit hardest by the pandemic and the recession and so they’re holding onto them,” Krebs said. “So that’s adding to the shortage as well.”
You can follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey and subscribe to our free Daily Money newsletter here for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: Car prices for new, used vehicles are up, with fewer rides under $10K