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How Surging Used-Car Prices Are Turning Vehicles Into a Profitable Investment

By Alice Kantor and Claire Ballentine

Move over, real estate. Used-car prices are rising so quickly that some consumers are selling their vehicles for a tidy profit. 

Supply-chain issues, chip shortages and a pandemic-related surge in demand have made it more difficult for buyers to get their hands on new vehicles, as car deliveries are delayed by months or sometimes even years. That’s pushed many into the secondhand market, with used cars at times selling at higher prices than new ones. But for those who’ve found they can live without that second or first car, it’s been a boon.

Photo by ANTONI SHKRABA from Pexels

A wide range of people around the globe are taking advantage of rising prices to sell their cars and make good money, finding their automobile to be an unexpected source of income at a time when wages are squeezed by soaring inflation and young people are looking to new side hustles to make ends meet. 

In February, used-car prices in the U.S. surged 41% year-over-year, while new car prices jumped 12%, according to data from the Labor Department. In the U.K., car prices were up 31% in December from a year prior, according to Autotrader. That figure was 15% in France.

For those willing to forgo their cars, it’s turned vehicles — typically a depreciating asset — into an investment similar to a house.

Car Flipping

David Schutte’s 2017 Mazda with 17,000 miles on the meter became a lucrative asset when he realized the market was going wild. The 25-year-old Arlington, Virginia-based consultant bought his car in July 2020 for $18,000; a year and a half later, he realized it was worth $23,500.

“When I saw that quote, I was like, ‘Oh, maybe I should seriously consider selling this car,’” he said.

Schutte — who mostly works from home and can commute to the office occasionally via metro and shuttle bus — decided selling the car last November would allow him to pay off his car debt with some money to spare. 

He used the remainder for his savings and to invest in a diverse portfolio of stocks on Robinhood.

Schutte is not the only one to sell a car to invest in stocks or cryptocurrencies. A range of young professionals have reported getting rid of unnecessary second cars or switching their vehicle for a bike to make some extra cash. Some have even turned to car-flipping as a profitable business.

“People are able to sell their used cars very quickly,” said Riz Dhanji, a U.K.-based used-vehicle dealer for Global Motors. “The market is so good, everything is selling at high prices.” 

In the U.S., U.K. and France, delays for new cars have led people to at times spend more money on a secondhand vehicle than a new version of the same model, since they can get their hands on them faster.

“Some cars have increased by almost 50% in value,” said Haji Arisar, a car dealer in London. “If someone bought a car in 2018 for 20,000 pounds and used it for three years, they could now sell it for 25,000 pounds, which is unheard of in this market.” 

Chapel Hill, North Carolina-based Thomas Jones bought his Subaru for $29,000 in 2019, and then sold it for a $2,000 profit in August 2021.

Working from home allowed him to rely on his wife’s car for a bit. Jones found the opportunity was a welcome one, as he was starting to become stressed about his household debt.

“We looked at all the things we have on our plate and the car was the easiest decision,” he said. “To have that debt burden off our shoulders is great.”

A total of 7.5 million used-car transactions occurred in the U.S. last year, almost 778,000 more than the previous year, according to the Society of Motor Manufacturers and Traders. The average used car sold in 28 days last November, down from 32 days two years prior in the U.K., data from Autotrader show. 

Still, there are signs secondhand-car prices are reaching a peak, with the Labor Department’s measure of prices falling 0.2% in February from the prior month and Manheim Consulting’s used vehicle value index down 2.2% from January. That was still up 32.4% from a year earlier. 

For those lucky enough to make a profit off their cars, tax season might hit a bit harder than usual. That’s because cars are considered a capital asset and are subject to the same taxes as investments like stocks or mutual funds. 

“How much you pay depends on how long you have the car,” said Lisa Greene-Lewis, a certified public accountant and tax expert at TurboTax. “It’s very similar to how long you hold onto stocks before you sell.”

The 2021 short-term capital gains tax rate — which you pay if you sell an asset less than a year after buying it — ranges from 10% to 37% depending on your income, while the long-term rate is between zero and 20%. Therefore, Greene-Lewis recommends waiting longer than a year to sell if you can.  

Gas Prices

The surging cost of fuel — due most recently to Russia’s invasion of Ukraine and a U.S. ban on Russian fuel imports — is also making it more expensive for people to own a car.

U.S. gas costs around $4.30 a gallon, the highest since September 2014, according to data on the website of AAA. In the U.K., a gallon of fuel cost over $8, according to tracker website GlobalPetrolPrices.com. That, along with parking, insurance and repairs, means the cost of a car can really add up.

Sean Spooner in Cardiff, U.K., was glad to cut his expenses when he found out how much his vehicle’s value had appreciated over the past year. 

In June 2021, the 26-year-old who runs a marketing agency bought a Ford Focus with low mileage for about 11,300 pounds. A few months later, he realized he could sell it for 2,000 pounds more than he initially paid on the U.K. car platform We Buy Any Car and eliminate some bills too.

“It was a no brainer,” Spooner said. “I usually think of used-car dealers hassling customers to get the best deal but the reverse was true — they were offering more and more. It was a seller’s market.”

After pocketing the profits, he turned to an electric-car subscription service called Onto where he can rent a vehicle for 30 days at a time.

He still can’t believe the profit he made from selling his car.

“When I first bought a car, I was really apprehensive about buying an asset that was going to undoubtedly depreciate and lose me money, so this was a twist,” he said. “The profit I took from that car made my first year of driving entirely free.”

More stories like this are available on bloomberg.com.

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