Do you remember when someone set a new Cannonball run in 2020, driving 2,825 miles in a modified Audi A8 from New York to Redondo Beach in just 26 hours and 38 minutes? That was pretty much the only cool thing to happen on the automotive scene during the COVID-19 pandemic, and some people felt it was an opportunistic thing to have done, given the timing of everyone else being on lockdown.
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With most countries in crisis, the automotive world came to a standstill – for the most part, the pandemic was bad news for the automotive community. During and immediately after, we saw nothing but parts shortages and skyrocketing prices. No one knew how long the pandemic and the resulting shut-downs would go on, and the effects on the economy were far-reaching – we’re still feeling it in some ways. Here’s how the pandemic is still affecting car buyers in 2024.
COVID-19 And Car Prices: Why The Pandemic Drove Auto Prices Up
You may have heard the term “covidflation” before, but if you haven’t, it’s a term used to refer to the increased prices we saw as a direct result of supply-chain hang-ups during the pandemic. In simple terms, social distancing, lockdowns, and the time and energy required to perform regular tasks in compliance with pandemic-era health mandates slowed production and distribution to a crawl. This resulted in short supply and high demand for basic consumer goods – and the components used to build things like cars and computers.
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As the automotive industry suffered delays in production, major events and important trade shows were canceled alongside shutdowns across the globe. Of course, the need for people to stay indoors meant fewer were out shopping for cars; studies show that the volume of car sales in the US decreased substantially during this time. But those needing to buy cars still existed – the main problems being they couldn’t shop in person, and that prices were going through the roof as manufacturers were trying to meet demands, source parts, and make up for their deficits.
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One of the big reasons for those higher car prices was the massive computer chip shortage in 2020, which stemmed from the economic conflict between China and the USA and was aggravated by the COVID-19 wildfire at the time. Other contributing factors included weather disruptions, factory fires, and the Russia/Ukraine war, but the gist of the matter is that solutions to the semiconductor shortage were few and far between during a time when the majority of the globe was on lockdown. This affected most industries, not just the automotive segment, with the Playstation 5 shortage being a good example.
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As prices for available components increased to meet demand, so too did car prices. According to Kelley Blue Book, the estimated average transaction price for a new light vehicle in the USA was $38,948 at the end of 2019 around the time the first reports of the COVID-19 virus hit. By 2021, the average transaction price had surged to $43,355 – a record high for the fifth consecutive month, and an increase of nearly 10% – and nearing $50k going into 2023. Slight decreases were reported in early 2024, with the average price being $47,218 – which is still a far sight higher than pre-pandemic figures.
Holding The Bag: How ‘Covidflation’ Screwed Millions Of Car Buyers
Some would-be buyers recognized the leap up in new car prices and opted to shop on the used-car market: used cars prices also increased to record highs during this time, but those prices were still more affordable than trying to get a new car at a sky-high cost – and having to wait for one to arrive at local dealerships.
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Car prices have somewhat stabilized in recent months both on the used car market and for those buying new, which is good news for just about everyone… except for those who bought cars at peak prices during the pandemic.
Let’s set the stage for what the automotive market looked like at the end of the pandemic, around May 2023: residual pandemic-era inflation meant that many Americans still couldn’t afford a brand-new car, and anyone who bought one during the pandemic was now holding the title for a car that was worth quite a bit less than what they paid for it. At the same time, CarEdge reported in early 2024 that trade-ins saw an 11% drop in value over just two months at the tail end of 2023. The dealers buying trade-ins cited declining used car prices, and higher interest rates, as their chief concerns. Auto loan interest rates are also high post-pandemic specifically because the Federal Government is raising interest rates in an attempt to slow out-of-control inflation. Meanwhile, used car prices are trickling slowly downward, after falling by about 9% or so from mid-2022 to mid-2023.
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American drivers purchased nearly 17 million new cars in 2019, and 14.5 million in 2020. By 2022, this had dropped to 13.7 million units, and those numbers are increasing again in 2024. All of this is to say that those millions of buyers between 2020 and 2023 are now left trying to figure out what to do with that car when it’s time for a trade in or an upgrade.
Have Your Say
Where can I find decent, cheap cars for sale without running the risk of being done in?
If you’re searching for second-hand cars due to budget constraints, you may run into scammers and people who won’t tell you everything about the car they’re selling, which puts you at risk. Some of the red flags to look out for are sellers who avoid answering questions and those who don’t want you to test drive the car before buying it. What else can you do to avoid being scammed, and is the internet a safe place to shop?
At the end of 2023, it’s estimated that one in five new vehicle sales had negative equity, meaning that the amount still owed on the loan was greater than the value of the car. Retail prices were already bloated, but drivers were more likely to pay above MSRP with additional dealer markups throughout the pandemic. This means that a lot of drivers took out very big auto loans back in 2020, and by the end of 2023 they were still underwater, and trading the car in isn’t exactly taking the problem off their hands, as they’re still eating the difference on the total trade-in value.
The Ripple Effect
If you somehow knew to hold off buying a new car back then – or you simply need one – then you managed to avoid taking a direct hit from pandemic-era price bumps. But, to think that that means you dodged the bullet entirely isn’t necessarily true. In some way or another, everyone who’s driving a car in 2024 is feeling the sting of pandemic-era inflation. These price increases have affected everything from insurance rates to trade-ins and car loans, and will continue to do so for the foreseeable future.
Buying A Car In 2024
Those buying cars now from sellers that purchased the car during the pandemic are most likely doing so at higher cost than is necessary, since sellers would try to make back some of their inflated expenditure. The same applies to trade-ins. Which means, if you’re next in line looking for a good pre-loved car, you’re also going to be paying more than you would’ve had the pandemic not happened.
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Some analysts suggest that you hold off until at least 2025 to see if prices continue to fall, so if you bought a new car in 2023 or 2024, you might wind up feeling some buyer’s remorse before long. Just ask the Tesla buyers who decided to finally take the plunge in 2022 and buy a Model Y for about $65,000, only to see the price plummet to around $44,000 just one year later. Or the buyers who took advantage of that price drop, and then saw the sticker prices dropping another thousand bucks the next year.
Other Costs That Have Gone Up
The knock-on effects of skyrocketing vehicle prices also mean that car insurance costs are at a 47-year high, according to Reuters. These costs have been driven up by pandemic-era eras needing to be insured at their inflated prices at the time of purchase. This, despite many auto insurers actually offering rebates and other incentives at the peak of the pandemic, when people were driving less and needing to cancel their policies due to less resources being available.
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To conclude, while the pandemic may technically be over, we’re still feeling the ripple effect of what may turn out to be the most significant economic event of our lifetimes. We’re coming off of three years of supply-chain hangups, inflation, record closures, layoffs, and shutdowns, astronomically high prices, and general unpredictability. The market doesn’t just correct itself overnight after something like that.
If you’re looking for a silver lining, we’re better than ever at fixing cars now as a result of all the bad stuff that happened. And, thanks to the restrictions and lockdowns, we’ve learned new skills for research and buying cars online is easier and safer than before.
Sources: Kelley Blue Book, CarEdge, Statista, Reuters.