Pandemic causes rise in used car prices
25th January 2021 · 0 Comments
By Fritz Esker
Contributing Writer
A new report commissioned by car buying app CoPilot stated that used car prices rose sharply in New Orleans and across Louisiana during the second half of 2020.
The report (https://www.copilotsearch.com/posts/cities-with-the-biggest-increase-in-used-car-prices/) noted used car prices have gone up around the country. “One of the major reasons for this was a decrease in supply. COVID-19 shutdowns didn’t just change consumers’ needs – they also disrupted global supply chains, dramatically reducing the number of new vehicles manufactured in the first half of 2020,” wrote the report.
Nationally, used car prices rose by 4.90 percent between June and December. In Louisiana, prices rose by 5.75 percent in the same time period, making it the state with the ninth largest increase. Used car prices rose by 5.42 percent from June to December in the metro New Orleans area. Out of the United States’ 52 largest metro areas, New Orleans saw the eighteenth biggest used car price increase. The biggest increase for any metro area was Salt Lake City, Utah, which saw a 7.37 percent rise in used car prices.
By vehicle, the largest price increases were seen in popular pickup trucks. The Nissan Frontier’s average used price rose by over 15 percent. Thirteen of the 15 models with the highest price increases were trucks. The Dodge Challenger and Chevrolet Camaro were the only two models to make the top 15 that weren’t pickup trucks.
In Louisiana, the model with the highest increase was the Mercedes-Benz C-Class with a 15.8 percent price jump. In New Orleans-Metairie, the Ford F-150 topped the list with a 12 percent price jump.
The one vehicle type to experience a decrease in price from June to December is vans. Passenger vans have seen almost a four percent drop in prices since June.
Leo Krasnozhon, a professor of economics at Loyola University of New Orleans, said possible causes for these increases include disrupted supply chains (as the report stated), low car loan rates and an increase in income and savings among those who have been unaffected by the recession but have been unable to spend as much on travel or entertainment as they would in a non-pandemic year.
“The lower car loan rates increased the demand for new cars and drove the price of new cars higher and the shortage of new cars caused by the pandemic disruption of the supply chain drove the price of new cars even higher,” said Krasnozhon. “The pandemic caused disruption in the supply chain of new cars because customer demand suddenly decreased at the start of the pandemic and it suddenly increased later.”
Krasnozhon said it is all an example of something economists call the relative price effect. An increase in the price of new cars caused an increase in demand for used cars because used cars are cheaper compared to new cars. But then the increased demand for used cars raised the price of used cars even though the supply is stable.
The CoPilot report’s findings were no surprise to Roderick Washington, a salesman at Jordan’s Automotive on Chef Menteur Hwy.
“In general, everything is up (in price),” Washington said.
Chris Carbine, owner of Carbine Motorcars Direct on Tchoupitoulas, agreed with Washington.
“The new car dealers didn’t have any new car inventory, so they all got heavily into the used car inventory,” Carbine said. “But we are starting to see a little slide now as dealerships get their 2021 inventory to start to roll in.”
Carbine added that the events of the last nine months have been similar to what happened during the Great Recession in 2008.
A salesman at a Metairie used car lot who declined to be named said cheaper used cars are becoming increasingly hard to come by. He said a car that would’ve sold for $3,995 this time last year is likely to sell for $4,995 this year.
This article originally published in the January 25, 2021 print edition of The Louisiana Weekly newspaper.
