Customers browse a used automotive car parking zone February 15, 2023 in Glendale, California.
Mario Tama | Getty Images
All recent vehicles after sale turn out to be used cars and trucks.
It’s an obvious statement, but it surely needs to be clarified to explain the root explanation for the ongoing inventory and price issues in the US used vehicle market, which has been a barometer of the country’s inflation rate.
During the outbreak of the coronavirus pandemic in early 2020, automakers shut down factories for weeks to contain the spread of Covid-19. This was an unprecedented motion that ultimately led to additional problems in the supply chain, similar to an ongoing shortage of semiconductor chips, causing factories to shut down production again for weeks, if not months, in recent years.
The dearth of production meant that fewer recent vehicles would turn out to be used models for consumers to buy, leading to stock constraints in each the recent and used vehicle markets, and to record prices due to buoyant demand.
It has been three years since those initial factory closures, but American consumers – in addition to the Biden administration – hoping the used vehicle market will return to “normal” pre-pandemic levels should not be holding their breath.
The numerous fall in used vehicle prices late last 12 months has been roughly halved in 2023 as stocks remain much lower following vehicle production disruptions. There has also been an unusually large variety of consumers buying leases to avoid skyrocketing automotive prices and rising rates of interest.
“It looks like this may proceed for a while to come,” said Chris Frey, senior manager of industry evaluation at Cox Automotive. “It’s really a function of this hole in recent production creating a dynamic where wholesale or general used values are higher because there are thousands and thousands less recent vehicles that may eventually turn into used.”
Cox Automotive reports that wholesale used vehicle prices have increased by 8.8% this 12 months. until mid-Marchaccording to the Manheim Used Vehicle Value Index, which tracks vehicles sold to dealers at auction. Prices are rising and the index is back to a record high of 257.7 basis points set in early 2022. In mid-March it was 238.6.
Inventories of used vehicles have fallen 21% greater than a 12 months ago and as much as 26% compared to the pre-pandemic level of two.8 million available vehicles in 2019. Cox Automotive does not expect total used vehicle sales to return to pre-pandemic levels of around 38.2 million units until a minimum of 2026, Frey said.
Adding to the production hole is a change in leasing. Cox sees a 20% increase in the variety of consumers who leased their vehicles by buying fairly than replacing between 2019 and 2022. The rise occurred because the residual values of the vehicles in some cases far exceeded expectations, making it less expensive to buy a vehicle than to lease one other with inflated prices and rising rates of interest.
“It’s still under a lot of pressure like last 12 months,” said motoring reporter Benjamin Preston for consumer reports. “Prices have come down a bit … but the bottom line is that they’re just much higher than before the pandemic.”
Cox Automotive previously projected wholesale prices according to the Manheim Used Vehicle Value Index to fall 4.3% from December 2022 by the end of 2023. The corporate did not revise this forecast, but may have to accomplish that amid rising prices wholesale.
Cox gives the mentioned average the price of a used vehicle was $26,068 in February, according to the latest available data, down from last 12 months’s record high of $28,000 but significantly higher than the roughly $22,000 average recorded two years ago. Retail prices for consumers traditionally follow changes in wholesale prices.
What’s the answer? There may be nothing left but to increase the production of latest vehicles in order to increase the variety of future used models. Automakers are expected to ramp up production this 12 months, but have also pledged not to rebuild as in the past.
“It’s unlikely we’ll return to pre-pandemic levels. Vehicles now cost way more,” Frey said, referring to used automotive prices. “The landscape has modified. [Automakers] they do not produce as much as they’ve because they taste like gold – huge profits from not having so many vehicles in production.”