Where Your Author Still Hasn't Purchased a Used Convertible

Would you believe it’s been a year and a half since we last discussed used convertibles? Much has changed during the interim: The economy, the used-car market, and life in general. While some of you were fairly convinced I’d purchase a car “on the rebound” after I’d dumped the quality control nightmare that was the Golf SportWagen in July of 2021, you were wrong. Let’s catch up a bit.

We’ll start with the more personal. In early 2022 I switched careers for a much better job and entered a new industry with it. I’m still a remote employee, which means my miles driven per week is still very low. Through all this time with only one car, the GS sits at 51,8XX miles and is due for an oil change. It had 39,350 miles on it when purchased in April 2019 and I immediately clocked another thousand on the drive back from Austin if you enjoy such calculations.

I’ve kept my eye on the used car market for the remainder of 2021 and 2022 and through the present day. And like you, I’ve watched the situation worsen continually. Sky-high pricing that was with us since early 2020, the ever-present chip shortage, and the lack of used cars were nothing new. The cherry on the top arrived via inflation that started to get bad in earnest in April of 2021. There wasn’t much on the market I was interested in, and I’d have to pay 25 percent too much for the privilege of buying anything at all. 

Instead, I put my money to use elsewhere. Since I was spending lots of time at home for the foreseeable future, I took the leap and had my kitchen gutted. It was a sort of surgical removal of its mixed 1940s to 1970s bones. Two months without a usable kitchen was rough, by the way. At least it’s one of those things that needs to be done only once.

A couple of months later the calendar said 2022, and the used car market (and inflation) continued to worsen. The first quarter saw inflation at 7.5, 7.9, and 8.5 percent per month, and the figures remained high through the rest of 2022. Buying a used car at any point that year seemed like a poor way to spend money.

Again I turned to Option B, spent some money on another thing I wanted to do, and paid off my house in October 2022. Keeping living costs in check is one of the “feels good” things that are high on my list. And it was a cost I could control in a time of spiraling food and goods costs (that I couldn’t). 

Out-of-control costs continue, as I’m sure you note at the grocery store every week. We wrapped up 2022 with some delicious 8 percent inflation in December. However, though I’m no Scientist of Economics, I think we’re headed for a car sales crash in the near future.

Dealers have been gouging customers since 2020 (hey, free market though), and we’ve kept a continued high interest environment as the Fed attempts to dampen inflation. Meanwhile, the used car market that’s soared since the pandemic is tapering off as consumers cut extra spending because everything costs a fortune. In December 2022, the average used car interest rate was 12.37 percent. Imagine that monthly payment for a 2015 Altima SV where a customer already paid way too much.

Nationwide used dealers like CarMax and Carvana are losing money hand over fist as prices fall on their sole product. The NYT reported used car values fell some 14 percent in 2022, and are expected to fall again this year. That change is harder to see in pricing, partially because of the big inflation. But it’s not hidden from financial reporting.

Carvana just lost over $500 million this past quarter, and laid off some 4,000 employees. The company’s stock price is down over 95 percent over the last 12 months. Some are suggesting Carvana might end up in bankruptcy, and there’s also bad news for CarMax. The last half of 2022 was rough for the dealer, and between September and the end of November its sales fell 21 percent. That caused a ripple to the company’s income, which fell 86 percent (to $37.6 million).

As a result, CarMax is attempting to slash internal expenses without substantial cuts to its car prices on lots. To that end the company bought 238,000 cars in Q4 2022, or 40 percent less than the year prior. That’s a notable easing of used-car demand, and the volume of new cars entering the market has also increased in recent months. 

Prior to the pandemic in late 2019, there were around 17 to 18 million new car sales in the U.S. per year. The pandemic dropped that figure immediately: In April 2020, the pace dropped to 8.9 million new cars sold per year. Manufacturers have recovered, and in the last quarter of 2022 new sales were around 14 to 15 million cars per year.

Despite Carvana’s statements about not slashing prices, per personal observation via tracked searches on AutoTrader they’re doing just that. Most of the time Carvana and CarMax will remove a car and then list it at a new (lower) price, instead of reducing a listed vehicle’s price. This serves two functions: It conceals what the car asked previously, and also brands the car with a “Newly Listed” flag that puts it at the top of searches.

But how long can a car dealer with thousands of employees and many locations purchase less, sell less, and keep their pricing static? Carvana in particular has never reported a full year of profit in any of its past 10 years on the stock market. The company generally spends everything it makes (and more) to build new locations and source more cars. But I don’t think they need to build any more stores for the foreseeable future.

One could argue that something's gotta give, and fairly soon. Used car pricing will continue to come down (even Tesla slashed its new car prices recently), and I predict there will be a sort of cliff face moment where it all happens: One of the big used retailers goes belly up.

After all the waiting since the fall of 2021, this upcoming point will be the time to buy. I’m still after a metal roof convertible for about $20k, and that hasn’t changed. However, my list of potentials from 2021 has had several deletions and two additions, and here’s how it currently looks:

• Cadillac ATS Coupe
• Cadillac CTS Coupe
• Cadillac XLR
• Lexus IS 250 C / IS 350 C
• Mercedes-Benz C-Class Coupe
• Mercedes-Benz E-Class Coupe
• Mercedes-Benz SLK350
• Volvo C70
• BMW Z4
• Lexus SC 430

Maybe we can dive into these edits soon, but for now, it’s off to you in the comments.

[Images: CarMax, Carvana, BMW, Lexus, Nissan]

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