Thinking about buying a car? There’s a shortage of those, too

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Due to the ongoing supply chain issues affecting everything from food to consumer goods, many of us have had to become more strategic with our purchases. This includes careful budgeting, prioritizing needs, checking inventory availability, and even upgrading shipping options to avoid delays with USPS. Now, cars are also joining the list of items that require this kind of pandemic-era shopping strategy.

The U.S. is currently experiencing a temporary shortage of cars, caused by a surge in demand combined with slower production rates. If you've been considering buying a new car—whether for family use or as part of your emergency preparedness—it might be best to stick with what you have or wait until later in the year.

What’s the situation like?

In April, when much of the U.S. economy came to a halt, many news outlets predicted a drop in used car prices. People were cutting back on spending, expecting a prolonged economic slowdown. However, auto auctions closed, leaving a large number of used cars without buyers or sellers.

This led to an oversupply of used cars online. When dealerships reopened in May and June, prices dropped. But over the past 60 days, used car prices have risen sharply as new vehicle supplies have dwindled. Joe Akers, Director of Operations at Cowles Nissan, noted that “we’ll now see a notable shortage of new vehicles during the summer.”

We’re now entering a new phase of pandemic-related shortages. There aren’t enough used cars for several reasons:

  1. New car manufacturers had to shut down early in the pandemic, leading to lower new vehicle supply.
  2. Dealers offered aggressive incentives to clear out the initial flood of used cars, including 0% APR deals for years, which has driven up demand.
  3. Many leased cars were not returned due to extended leases during the shutdown, so they’re still off the market.
  4. Imported parts and components are delayed due to global supply chain disruptions, with some parts taking up to 12 weeks to arrive.

“In the short term, used car prices will stay high due to limited new vehicle supply,” said Akers. “Plus, strong new car incentives make it a poor time to buy used. The best opportunity was early in the pandemic, which is now gone.”

While this is good news for the economy, builders, and car sellers, it's bad news for buyers. The auto industry—and homebuilding—has bounced back faster than most sectors since the pandemic began. But high demand and low inventory mean higher prices for consumers.

Carvana’s Situation

Carvana is a company that seems perfectly suited for the pandemic era. It operates like an online used car dealership—you pick a car, click to buy, and it gets delivered to your door. Think of it as Postmates, but for cars.

Last week, Carvana released its second-quarter earnings. The company sold over 55,000 cars since April and reported increased profits and revenue compared to the same period last year. However, they also mentioned being “operationally constrained” and struggling to keep up with inventory.

“Carvana is a used-only dealership,” said Zach Shefska, CEO of Your Auto Advocate. “They're having trouble buying cars at auctions because used car prices have skyrocketed.”

So why have used car prices gone up so much?

“Because new car production hasn't kept up with demand,” Shefska explained. “This has pushed more people toward the used car market, driving prices up across the board.”

Wait Until Late September or Early October

If you're thinking about buying a car, now isn't the best time. Demand is high, and supply is low. Both dealerships and manufacturers need time to catch up. However, the right moment may be coming soon.

“Once manufacturers return to pre-pandemic production levels, we should see car prices stabilize,” said Shefska. “Our guess is that the best time to buy will be in the fourth quarter of this year.”

Pat Ryan, founder of the CoPilot app, agrees. He suggests marking your calendar for the last week of September or the first week of October, when the used car market could shift into a buyer’s market.

Ryan highlights two key factors to watch for:

  1. Up to 560,000 additional cars may come off lease this fall, as deferred leases are finally ending.
  2. Car rental companies are struggling due to reduced travel, and up to 250,000 rental cars could enter the used market, including 175,000 Hertz vehicles.

“You’ll probably need to be flexible if you plan to buy a car this summer or fall,” Akers said. “But that’s just part of life in the pandemic era.”

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