Search
Close this search box.
Why Used Cars Cost More Than New

Why Used Cars Cost More Than New

You used to have a big incentive to buy used cars since they were so much cheaper. Now, you’re scratching your head and wondering why used cars cost more than new vehicles. 

Several factors are at play, including supply and demand issues, a limited stock of cheap older cars, and big discounts when buying new. Learn about the economic factors affecting car prices and how to secure a good deal.

Why are many new cars cheaper than used cars?

In 2022, the average gently used car cost $3,574 more than a new car of the same make and model. Fortunately, used car market trends are moving in the right direction, and now, you’ll spend an average of $3,701 less when buying used. Car pricing varies by make and model, and many new cars are still cheaper than used vehicles.   

Discounts and incentives due to inventory overstock 

Not that long ago, buying a new car was close to impossible. The auto industry struggled through supply chain issues and microchip shortages, forcing you to buy used instead of new. The supply chain is now up and running, so some dealers offer incentives because they have too much inventory. 

Most dealers try to follow the industry standard by having a 60-day supply of new cars. Still, the average new car inventory ballooned to an 80-day supply in February 2024. It dropped slightly to a 72-day supply in March. However, several brands still have over twice as many new vehicles as recommended.

This is a big problem for auto dealers since most have to make monthly payments on all their unsold cars. Many dealers would rather sell cars for less than make monthly payments, so they’re offering steep incentives on new cars. 

In March 2024, the average buyer received a 6.6% discount when buying a new car at a dealership. If you think that sounds like a lot, you’re right. It’s more than twice the amount buyers received the previous year. These discounts drive the sale cost down quite a bit and are part of the reason the new car market is heating up. 

Dealerships will eventually balance their supply with demand, but right now, you might find a deal from the following manufacturers:

  • Jaguar
  • Dodge
  • Ram
  • Alfa Romeo
  • Fiat 
  • Lincoln
  • Jeep
  • Chrysler
  • Volvo
  • Polestar
  • Mazda
  • Infiniti 
  • Genesis
  • Nissan
  • Ford 

These manufacturers have the most excess inventory of all the brands. With a big surplus, you’re likely to find a variety of trim levels at each dealership, along with discounts. You can also try to drive the price down even more by negotiating. Remember, dealers want to get rid of the extra inventory, so it’s a great time to negotiate. 

Dealerships are stocked with affordable base trims

Do you remember what car dealerships were like during the production slowdown? They were overrun with high-end trucks and SUVs, with few lower-level trims in sight. You might have thought the dealers messed up when ordering, but it was out of their hands.  

Manufacturers did the math and realized the slowdown would hurt their bottom lines if they continued selling cheaper cars. Base-level trims and affordable cars don’t have high profit margins, so they poured their resources into making high-end vehicles. 

There’s a good chance you were among the buyers frustrated by this strategy. Fortunately, manufacturers have finally made a change once again. Now, they are producing all makes and models, including low-cost base-level trims. 

When comparing used and new car prices, you’ll notice that many base-level trims are cheaper than pre-owned fully loaded vehicles. You won’t get all the features that come with a loaded car, but the cost savings can be huge. It’s worth considering a base-level trim if you’re on a tight budget but want the latest model. 

Higher trade-in values

Used cars are a hot commodity right now, and car dealers don’t have enough to keep their customers happy. That’s bad news if you’re in the market for a used car, but it’s good news if you want to trade in your current vehicle. 

You’ll likely get more on your trade than you would a few years ago, even if it’s an older high-mileage model. Dealers are struggling to get their hands on older cars since so many people are looking for them. That works in your favor if you’re ready to trade in your car. 

Let’s say you have a 2011 Honda Pilot Touring trim with 180,000 miles. If you had tried to trade it a few years ago, you would have been lucky to get $2,000. Now, depending on the condition, you can get $5,000 or more on the trade.

The trade-in value doesn’t impact the sticker price but lowers the overall cost of buying a new car. For instance, if a new car’s sticker price is $30,000 and you get $5,000 for your trade, your new car will cost $25,000. 

Keep in mind that the trade-in values will likely decrease as soon as dealers have a solid supply of older cars. You can look up your current trade-in value on Kelley Blue Book to decide if now is a good time to take it to a dealership. 

Reasons for high used car prices 

The days of going into a dealership and browsing through rows of used cars under $10,000 are long gone. Sure, you might find a great cheap car, but that’s not nearly as common as it used to be. After all, the average cost of a used car was $25,540 in March of 2024. That’s a long way from $10,000. 

To understand why used cars cost more than new cars, you have to consider buyer urgency, supply and demand, competition, and available options. Each has a role in the sky-high prices and might continue to impact the market for years to come. 

Urgent buyers can’t wait months to get new cars 

While some dealerships have too many new cars, others don’t have nearly enough. In March 2024, the average Toyota dealership only had 33 new cars on hand. Lexus, Honda, Land Rover, and Kia dealerships also had less than a 60-day supply. 

If you visit a dealership with a limited new car inventory, you probably won’t find what you’re looking for. You can order a car from the factory, but it’ll take months to arrive. If you’re lucky, you’ll have your new car in two months, but it can take much longer. Some people wait six months or longer after ordering a new car. 

Waiting months for a car is a luxury that most people don’t have. Dealers know that, and some increase prices due to the sense of urgency. You can easily spend more on a used car than a new car if you’re in a pinch and need a vehicle fast. 

Demand is outpacing the supply

Supply and demand issues are among the biggest economic factors affecting car prices. People snatched up used cars during the production slowdown since new cars were in short supply. Now, dealerships are struggling to replenish their used car stock, and it could take years to rebound fully.

Normally, dealers can increase their used car supply when customers return leased vehicles. Unfortunately, fewer people signed leases during the production slowdown. Without those expiring leases, dealers are scrambling to stock up on used cars.

They also aren’t getting as many gently used trade-ins. While most people hold onto new cars for a long time, some prefer upgrading every year or two. Since many didn’t buy cars during the slowdown, they’re also not trading them in. 

This means that dealers are not incentivized to lower prices on used cars. They know they can still make sales, even when the prices are higher than some new vehicles. 

Fewer high-mileage older used cars for sale

Years ago, you could go to a car dealership and pick up a high-mileage, older model for under $15,000. That’s still possible, but the inventory is thin. By the end of March 2024, dealers averaged a 33-day supply of these cars. While that’s the average, many dealers have even fewer of these cars in stock. 

The limited inventory makes it hard to find what you’re looking for at a low price. Dealers are trying to add more of these cars, but it could take years for the auto market to rebound to include more affordable options. Until then, you might find yourself looking for a reasonably priced new car that could provide better value. 

Certified pre-owned cars and warranties add to the cost 

You can expect to pay more for a certified pre-owned car than a standard used car. Certified pre-owned cars are low-mileage, well-maintained, and have clean Carfax reports. Dealerships inspect and refurbish these cars before listing them for sale, and they typically come with warranties. 

As you can imagine, that increases the sticker price. Depending on the make and model, you can spend several thousand dollars more on a pre-owned certified car. That’s why comparing new and used car prices is so important. You might discover that you can spend less on a new car that also has a warranty. 

Private sellers want to get more than the car’s value 

Car dealerships don’t own the used auto market. You can also look through private seller listings. Private sellers can set any price they want, and sometimes, they inflate the value of used cars. This is especially true now, considering the level of competition in the used car market. 

Kelley Blue Book and Edmunds both have car pricing tools you can use. By looking up the price, you can avoid paying more than a car’s worth when buying from a private seller. You can also use this tool to check the prices when buying from dealerships. 

High-interest rates 

Interest rates are climbing, and you’ll feel the impact when taking out a used car loan. It’s riskier for banks to loan money for used cars, and that comes through with higher interest rates. Used car interest rates are usually around two to seven points higher than new car rates, based on your credit.

If you’re not in a hurry to buy a car, you can wait for interest rates to go down. That’s expected to happen soon, making buying a used car much more affordable. Also, some dealers offer zero-percent financing on new cars. 

FAQ

Why do used cars cost more than new ones now?

Used cars cost more due to a lack of supply, fewer affordable trims, high interest rates, and competition that drive up prices. Urgent buyers are also more likely to pay high prices for used cars.

Is it financially better to buy a new or used car?

New vehicles lose around 20% of their value within a year due to car depreciation, but they’re more reliable than most used options. Check the five-year cost of ownership to determine the better option for you. 

Are used cars worth more than new right now?

The pre-owned car value is typically less than the value of a new car. Still, the value differs by make and model, so research the car on Kelley Blue Book and Edmunds before buying. 

Why are used car prices so insane?

Market demand is outpacing the supply, causing used car prices to increase. The long wait time for new cars has also caused prices to rise.

Share the Post:

Related Posts