Of all the segments of the economy upended by the COVID-19 pandemic, one of the most unexpected — at least for consumers — has been the used car market.
Everyone’s idea of a second choice is now a top seller. Thanks to the lingering pandemic, microchip shortages and a disrupted supply chain, new cars are in short supply, boosting the market for used cars to previously unseen levels. The average price for a used car reached $27,000 last month and is already approaching $27,500 as the 2021 winds down. That’s a 35% increase from the beginning of the year.
That should be a warning sign for consumers. The trend is unlikely to last, and a return to normal could leave many used car owners in the lurch — especially those who took out a loan to fund their purchase.
“Whatever path the new-car market takes to a ‘new normal,’ used-car prices will eventually return to the traditional relationship with new-vehicle prices,” the accounting firm KPMG wrote in a white paper published earlier this week. “In other words, a 20% to 30 % plunge in used-vehicle prices is in the cards.”
That could leave many used car owners with negative equity, meaning the cost of their loan is higher than the value of their car. It should also give pause to those currently in the market for a used car, as prices aren’t expected to drop until the end of next year or the beginning of 2023.
Then there is the inherent risk of buying a used car, especially in a private sale.
Fortunately, the state Legislature is working to update the Massachusetts lemon laws to keep junk cars from passing from buyer to buyer.
Lawmakers on Monday heard testimony in support of a bill that would better define the timeframe for returning a defective vehicle after it fails a state inspection and expand warranty coverage to higher mileage for used cars.
Currently, buyers have seven days after purchase to return a car for a full refund. But supporters of the bill, including Attorney General Maura Healey, note that there can often be a gap between the time a car is purchased and when it is delivered to the buyer. The proposed measure would also raise the cap on required coverage for used vehicles to 200,000 miles.
“We regularly see cars being sold with 100,000 miles or more on them,” said Shennan Kavanagh, chief of the AG office’s Consumer Protection Division. “In these cases consumers end up with limited warranty coverage or no coverage at all.”
The Legislature should move quickly to pass the bill in the new year and provide consumers with some small relief from the market correction that is sure to follow.