Used Car Shortage Looming For The Next 5 Years

Hidden Crisis in the Automotive Industry
There is a hidden crisis about ready to hit the automotive retailing industry and it’s related to the pandemic even though that’s been over for years. The reason is there will be fewer lease returns and fewer used cars for that matter. Remember back in 2021 and 2020 when dealerships were shut down for the pandemic, there weren’t as many cars sold or leased. Remember, used cars—the used car inventory doesn’t come from a used car factory; it comes from vehicles that were sold two or three years ago, now coming back into the marketplace.

Impact of 2021 Leases on 2024 Market
If you had a three-year lease on a car, which is the most common lease term, in 2024, leases that are coming due were put out in 2021. In 2021, there were much lower volumes of vehicles sold or leased. So, if you’re a dealership, you normally would have a big off-lease pool of vehicles that you can draw from. In 2024, you’re not going to have that pool, which means used car inventory is going to be very difficult to come by. People who bought cars in 2021 didn’t lease them—they bought them. There were fewer cars sold that year, but also, those people may keep them longer than before.

Slim Used Car Market Ahead
So, it’s likely that the late-model used car market is going to be very slim for the next 12 to 18 months. What is that going to mean for the industry? Automakers will have a challenging future, and leasing rates fell from 1 in 3 to 1 in 6—half the number. Certified pre-owned cars will see a reduction in supply because there’s less of them. What’s that going to do for prices? Well, prices might go up on used cars again, which might make it difficult if you’re in the used car market. It might also be a good time to look at a new car versus a used car.

Outlook on the Future of the Car Market
How long is it going to last? Well, according to JD Power, one of the largest automotive consultants, the used vehicle supply won’t return to 2023 levels until the end of the decade—that’s five to six years away. So, if you’re looking at the car market this year, next year, or down the road, you might want to hang on to the used car you have if it’s a nice one, or consider a new car that might not be much different in price from the used car that might be in the marketplace.

Future Considerations for Car Buyers
Interest rates are still going to be high, so if your vehicle inventory in your family is such that you may need to replace one or more of your vehicles, consider what the marketplace is going to be like in the next few years to make plans for which car to consider, which car to buy, or which car to keep.

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