Used-Car Auction Prices Head Higher Again, Computer Chip Shortage Shares The Blame – ForbesDecember 20, 2021
Used-car prices have surged along with new-vehicle prices, since the pandemic and the current … [+]
The recent decline in wholesale, used-vehicle prices — hinting, perhaps, at some relief from sky-high retail prices — turned out to be short-lived, as the average used-vehicle price at dealer-only auctions increased again in August vs. the prior month, according to auction firm KAR Global.
“The two-month decline in average wholesale prices ended in August,” said Tom Kontos, chief economist for KAR Global. “The continued chip shortage on the new-car side and the ‘perfect drought’ in supply on the used-car side are the main reasons for this,” he said in a report that was posted online Sept. 28.
Wholesale used-vehicle prices in August averaged $14,712 — up 3.2% compared to July, and up 9.0% vs. August 2020. To provide some perspective, prices were up 30.8% compared with pre-Covid/August 2019.
By a perfect drought in used-vehicle supply, Kontos refers to a relative scarcity of off-lease returns, repossessions, and customer trade-ins — three leading sources of inventory for the wholesale auction industry.
Trade-ins are less plentiful, because the computer-chip shortage is leading to lower monthly auto sales. Customers are hanging onto their used cars longer, in hopes of finding the exact model they want, and-or a better price on a new or used replacement.
Lease trade-ins are scarce, because more customers are purchasing their off-lease vehicles at lease end. And if the customers don’t buy them, dealers are buying many of those returns themselves, at the dealership, for resale. Therefore, those cars don’t make it to the auctions.
The issue is that leasing companies guessed too low three years ago, when they estimated what those vehicles would be worth at lease end. Those residual values turn out to be a bargain in today’s market.
Repos are also down because many lenders allowed customers to postpone payments because of the coronavirus pandemic. Industry analysts are watching to see whether repossessions pick up again, as federal support for rent and mortgage payments goes away.
Retail used-vehicle sales at franchised, new-car dealerships and at independent used-car dealerships declined 2.2% in August vs. July, and declined 12.8% for August 2021 vs. August 2020, Kontos reported.
That’s partly because of “used-car supply shortages that limit vehicle selection,” Kontos said. But also because, “consumer awareness of high used-vehicle prices may be leading some shoppers to delay their purchases,” he said.