Best investment now: passenger cars and used pickup trucks

In a piece published by Forbes magazine, Steve Tangler, an expert with over 29 years of experience in the automotive industry, insists one should buy used cars, for this type of investment, according to him, will be the most profitable solution this year and the one that follows. 

In economy riddled with inflation, investors are on the constant lookout for options to invest their money to surpass the standard return on investment (ROI). Buying short-term bonds is usually the strategy to avoid inflation. Moreover, creative investors turn to alternatives like, for example, buying shares in cryptocurrencies. The latter option, however, is rather risky: to buy depreciating crypto is for the people with unwavering trust in their financial fortune tellers.

Keeping money locked away in a drawer is not a solution, for it will lose up to 8.3% of its value in one year.

Perhaps, the best strategy is to purchase a used car, or even three of those.

«We have just bought ourselves a second-hand SUV with 8000 of miles travelled», says Jennifer Merchant from Canton, MI. «Several days afterwards, we found a sticker with original price, which was lower than what we paid.»

Considering the price persistence, which is based on historical circumstances and ongoing shortage of electronic chips, one can assume that buying a used automobile is a better option than any other investment in 2022 and the next year.

Historical values

The chart above shows in orange the consumer price index (CPI) from FRED for all commodities in the cities of the U.S. over the last sixty years, with division by average value. This chart clearly showcases that in times with high inflation rates, like the late 1970s – early 1980s, for example, CPI can be around 250-300% of the average of the same index. During the Great Recession of 2008, this indicator went down to 150%.

The numbers go up and down constantly. The current CPI is 121% of the index average. The blue line on the chart represents the same calculations, but for the CPI for the prices of second-hand passenger cars and pickup trucks. Generally, the blue graph only goes up, no significant dips whatsoever. The prices of used sedans and pickup trucks stay the same while the inflation numbers oscillate.

In this brief moment in time, the current CPI is 98% higher than the index average, which makes it almost the same as all commodities inflation rate.

Will the inflation rate go down? Probably. The Federal Reserve System (FRS) raised the rates by half percent in February 2022, which had been the most substantial increase since the early noughties.

The reason behind the move is clear: to fight the rising prices. According to the commentary by Jerome Powell, the Chair of the Federal Reserve of the United States, several spikes are plausible in 2023. Yet the move in question has never before resulted in the prices of second-hand cars going down. This makes the second-hand vehicles market the most promising in this year and the one that follows. «The prices for the used cars remain high due to the steady demand to buy and sell automobiles. In reality, wholesale price increases over the past few weeks have been going on in several auto market segments, small and average-size pickup trucks segment in particular. These stats are confirmed by Black Book*», said George Chamoun, CEO of ACV Auctions.

According to Mr. Chamoun, the consumer demand went down a notch compared to unprecedented highs of 2021, yet it has not resulted in significant drop in used cars prices.

Ongoing shortage of electronic chips

As many consumers know, one of the most lasting aftereffects of COVID pandemic was the shortage of automotive semiconductor chips («microchips»), which are in control of most any unit of a modern car. An average reader does not understand, probably, why supply lags behind demand, but the answer is simple: it takes years and billions of dollars to build new factories and plants.

Thus, the ongoing lag in microchips production creates a shortage of vehicles, the one which will not be resolved in foreseeable future. According to Associated Press, the sales of new cars in the U.S. have dropped by 12% due to the lack of off-the-shelf vehicles from major car manufacturers, like GM, Honda, Nissan and others.

In its 2022 Crash Course report, CCC Intelligent Solutions states that the new cars deficit stimulates the demand for the used cars: «Used cars prices went up drastically in 2021. As the supply of both new and used cars remains limited, the second-hand cars prices are expected to remain high till the end of this year at least.»

As Newsweek reported in April, several CEOs of the car manufacturing companies (Jim Farley, Chief Executive Officer of Ford, for instance, and Oliver Zipse, Chairman of the Bord of Directors of BMW) «…are expecting the shortage of microchips to be a problem in 2023.» This will likely lead to a further decrease in demand. The majority of the 2023 will be dedicated to tackling the issue.

In the meantime, the prices of used cars will go up.

Steve Tangle jokingly suggests buying a second-hand car instead of season tickets for the Dallas Cowboys football team ($3400). Mr. Tangler believes this to be a reasonable investment, which can help avoid significant disappointment in life to boot.

*National Auto Research’s Guide to Vehicle Evaluation.