Used cars fetch higher prices as demand outstrips supply

Used car prices continue to rise.

Since last year, a shortage of semiconductors and constraints in the supply chain have severely restricted new car supply. This in turn has reduced the availability of used cars.

As the pandemic has persuaded consumers to seek personal transportation over public transit, demand for cars of all types has increased while supply has decreased, driving up prices for both. But with fewer new cars being bought, there are fewer trade-ins, pushing up trade-in prices.

“The ongoing inventory shortage has caused a broad ripple effect in market conditions. As new vehicles became elusive, buyers turned to the used car market, which pushed used car prices up 37% in the first quarter,” said Jenni Newman, editor-in-chief of Cars.com. “Dealers strive to have quality inventory and make lucrative offers on popular vehicles that are maintained in good condition with low mileage.”

Because the market for used cars is far larger than that for new cars — 40.9 million used cars were sold in the US in 2021 versus 14.95 million new cars — higher prices have a greater impact.

Survey finds high prices for trade-ins

According to a recent Cars.com survey, 99% of dealers said they are paying more for trade-ins now than they were two years ago. Payouts are up between 11% and 20% according to 60% of respondents, with 1 in 3 traders reporting that their payouts are up 20% or more from two years ago.

For those trading in one car for another, the increase in used car valuations can help offset other price increases.

Consumers don’t complain, at least when they trade in their cars. 63% of mass market vehicle owners and 59% of luxury model owners said they received a higher than expected rating.

According to wholesale data from dealer vehicle rating site Accu-Trade, the highest resale value comes from electric or hybrid vehicles, and surprisingly full-size vans. With the current warmer weather, sports cars are also seeing a jump in price.

In one month, from March to April 2022, resale prices for Tesla Model 3, Toyota RAV4 Prime and Kia Optima increased by 12%; 9% for Tesla Model Y and Toyota Corolla; 8% for Chevrolet Bolt EV, Kia Sportage, Honda Civic and Ford Transit; and 6% for the Dodge Charger.

Year-on-year, auto auction house Manheim found that wholesale prices for vans rose 24.8% in mid-June, small cars rose 15%, luxury cars rose 14.1%, mid-size cars rose 12.2%, and SUVs and Crossovers up 10.7%. Pickup truck prices, however, fell 1.2 percent. Overall prices are up 11.1% yoy in the first two weeks of June compared to the same period last year.

Higher rates and prices have an impact

According to the US Bureau of Labor Statistics, new car prices rose 12.5% ​​year over year. Interest rates are also rising, with the US Federal Reserve raising interest rates by three-quarters of a percentage point last week. It’s the biggest rate hike since 1994. And there’s evidence that the Federal Reserve could hike rates another 0.75 percentage point at the next central bank meeting in July. This would increase interest rates on car loans and reduce consumers’ purchasing power as all vehicle prices increase.

Manheim states that dealers have a 45-day used car supply and a 25-day wholesale supply.

But as new cars become less affordable and new car buyers continue to consider used cars, rising prices are making new cars even less affordable than they already were, which could further fuel the used car market and exacerbate an ongoing trend.

That The average used car price increased by 35.3% in the past year and now costs more than $30,000, according to Edmunds.com, paid for by a 70.7-month (nearly six-year) loan at 8% interest with a monthly payment of $544.

The higher prices are contributing to the current surge in inflation, with the latest consumer price index showing used car prices up 1.8% and new car prices up 1% from April to May.

But there are signs that higher rates and prices are impacting sales, as Manheim notes that wholesale prices for used vehicles were flat from May for the first 15 days of June. While that doesn’t mean prices will fall, it does suggest that they could start leveling off once supply meets demand, although that could take months or even years.

However, Manheim reports that dealers had a 45-day supply of used cars as well as a 25-day wholesale supply, up one day from late May and five days more than the same period in 2021. Whether that’s the start of a trend remains to be seen. Relief through higher prices is still a long way off.

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