SHOPSMART AUTOS – CUSTOMER INFORMATION – SEPTEMBER 11, 2021 – PT.2
Car sales slump as vehicle prices continue to surge
Driven by scarcity
The main factor pushing up used car prices is scarcity, according to Jessica Caldwell, executive director of insights at Edmunds. Nearly all of the regular sources of used cars have been disrupted by the pandemic, she said. Fewer new car sales in the past year means fewer trade-ins. People are extending their leases. Rental car companies, normally a reliable source of used cars, are instead buying used cars themselves in order to rebuild their fleets that were sold off last year as business travel and tourism came to a halt. It all started in April and May of last year, when U.S. automakers were forced to close factories for eight weeks to help stop the novel coronavirus from spreading. That cut production, limiting inventory even as demand remained surprisingly strong. The factories came back faster than expected, and, in the meantime, computer-chip makers had switched to manufacturing semiconductors for phones, laptops, gaming systems and other consumer electronics. That created a shortage of automotive chips, which is forcing car companies to temporarily close factories, leaving some dealers with few new vehicles. The lack of new vehicles and higher prices have sent more people into the used vehicle market, so demand is high there, too. Plus, rental car companies, normally a source of late-model used vehicles, are keeping their cars longer because they can’t get new ones, Yurchenko said. At present, consumers who have to replace a vehicle don’t have much choice. “Unfortunately, if you need a vehicle, you’ll need to pay the price,” Yurchenko said.
Signs of slowing down
But there are signs that price increases are starting to slow. Used car prices rose 0.75% last week, the lowest weekly gain in 17 weeks. Trucks and SUV prices grew 0.68%, the lowest weekly gain in 15 weeks, according to Black Book. Karl Jensvold, owner of PricedRite Auto Sales, a used vehicle dealer in Lincoln, Nebraska, said he’s seeing wholesale prices leveling off, but he doesn’t expect them to drop anytime soon. “I think the normal used car market has reset to a different price point,” he said. “I don’t think we’ll see the prices (from) before COVID for a while.” Yurchenko said at some point prices will have to go back to normal and used vehicles will depreciate once again. The timing depends on how long it takes to get more computer chips so automakers can resume normal production, he said. “Once the new inventory levels start increasing, that’s where the pressure on the used market will be relieved,” he said.
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