What you need to know
- New auto chips and supply chain problems have increased the demand for used cars
- Prices increased with demand
- Demand is starting to stabilize
- The main used car supplier has stopped selling to agents
Once the pandemic stops cutting computer chip supplies and shipping, prices are likely to fall as assembly lines produce more vehicles to meet demand. While used car prices are cooling a bit, The Drive reports that some used cars are currently selling for more than they cost new on the lot.
“I’ve never seen [the used car market] So said Justin O’Brien, a car salesman for over 10 years at a large dealership in eastern Kentucky. “Dealers want to buy people’s cars because they can’t get used cars for their stock like they used to. Just like anything else, it’s supply and demand, and when demand is high and supply is low, the price goes up.”
Used Car Dealership Georgetown Auto Sales is located across Cherry Blossom Way from new car dealership Dan Cummins Chevrolet in Georgetown, Kentucky. Both dealerships have large signs displayed to let passersby know that they want to buy their cars. On the Georgetown Auto Sales website, one can provide information about the vehicle and get a cash offer in about 25 minutes.
O’Brien said people take advantage of such offers by merchants.
“I know of a particular case where the woman was upside down in her car, she pays a lot a month and has about five years left on her financing,” he said. She tried to get it off a few times but couldn’t get a deal that worked for her enough to make the deal worth doing. When dealerships started offering to buy cars after COVID hit and chip shortages began, she sold that car for $100 more than the bonus. Similar cases occur all over the country. I have a Kia Telluride, I paid it $45,000 and it has about 20,000 miles. I can sell her now for what I owe her, if not a little more.”
Pulling data from 1.5 million used cars in January, iSeeCars generated a list of the top 15 by noting lightly used late-model cars and reporting that they sold an average of 1.3% more than they sold new, with the trend predictably favoring over-demanded models. Offer by the largest margins.
Number one on the list is the Mercedes-Benz G-Class, or G-Wagon, which sells an average of 35.6% more than when it was new, for an average premium of $62,705.
Coming in second is the Chevrolet Corvette, according to The Drive, which had more demand than supply before COVID disrupted its manufacture. The Corvette, along with the G-Wagon, has a five-digit mid-coding and represents one of three Chevys and four General Motors products on the list – GM the most represented automaker on the list. Behind it is Toyota, of which the Sienna and Tacoma are the pickup truck and the only pickup truck on the list.
The Tangled Hyundai and Kia have three entries in common as well, one of which is the best-selling Telluride, while the others, oddly enough, have their own little compact cars—the Accent and Rio, respectively, selling for $2,000 more than they were worth on the dealer’s lot. The only electric car on the list is the Tesla Model 3 at number three.
A report by auto valuation and auto research firm Kelley Blue Book confirmed that inventory limits drove new car prices higher in 2021, forcing shoppers, on their budgets, to enter the used-car market. Inventories of new cars were down 71% at the end of March compared to the same period in 2019, according to KBB.
The first quarter is usually dormant for auto sales, but the start of this year was slower with persistent computer chip shortages and omicron COVID cases recorded in January. This was followed by the Russian invasion of Ukraine in February, causing a series of energy and commodity shocks. Then came the Canadian truck driver strikes at the border and an earthquake in Japan that further delayed car production.
Another factor affecting used car prices is automakers building fewer cars overall for several years after the 2008 recession, leaving dealers with a few older, higher-mileage cars that they’re selling at lower prices — driving up prices. Used car prices rose faster than new car prices during the shortage period.
The supply of used cars began to recover. America’s auto dealers ended March 2022 with a 45-day supply — up from 32 days one year ago. The average used car sold for $28,205 at the end of 2021, according to KBB.
“Most used car dealers who buy for their parts come from Enterprise car rental,” O’Brien said. “But the Enterprise couldn’t replace their fleet with new cars due to a lack of chips, so they had to keep what they had. When the ability to get these cars from the Enterprise stopped, dealers had to do everything they could to get stock, so they just started offering to buy People’s cars. Most dealerships don’t focus too much on buying you and then selling one to you as well, because they need inventory.”
According to KBB, the least expensive cars remain the hardest. Dealers closed March with just a 26-day supply of used cars for less than $10,000. Those priced between $10,000 and $20,000 had a supply of less than 37 days. The $20,000 to $30,000 price segments were 50 days on offer for 60 days.
“The dealer I work for likes to have between 200 and 230 used cars on site at any one time,” O’Brien said. “A few months into the epidemic, we had 30. When chip production was back to normal and it wasn’t hard to find new cars, the market would be flooded with new and used cars, so the high prices, which are already starting to come down a bit, will continue to decline and eventually return to normal.”