[Auto] Used Cars Are Costing Dealers More, but This Can Still Be Your Summer of Deals

[#Sissa]

The wholesale price of used vehicles, the prices generally paid by dealers at auctions, fell steeply when the coronavirus-related shutdowns began, but since then, they have jumped above pre-pandemic forecasts.
Nonetheless, the retail price, or the price paid by consumers, of used vehicles has remained fairly flat.
The used-vehicle market's landscape could change greatly in the coming months when a lot of cars with leases extended during the pandemic come back to dealerships, and also if a cash-for-clunkers program comes to fruition.
While states across the country issued stay-at-home orders to combat the spread of COVID-19, the used-car market shuddered as the flow of used vehicles to dealer lots was disrupted. Wholesale used-car values, or the prices paid by dealers, fell 11.3 percent from March to April, according to the Manheim Used Vehicle Value Index.
 

Yet, after hitting a low in April, values have recovered 13.9 percent through mid-June, producing, in effect, the fabled V-shaped recovery. On top of that, according to research from J.D. Power, the value of used cars on the wholesale market has surpassed the analytics firm’s pre-pandemic forecast.

Consumers Don't Have to Fear High Prices
Dealers are paying more to get used vehicles in their lots, but that doesn’t mean that consumers are paying more, nor will they have to, according to Jonathan Banks, vice president of J.D. Power valuation services. "In general, retail prices have remained pretty flat, so on the question of if you're a consumer, should you sit on the sideline? Not really, because prices really haven't gone up for used vehicles," adding that that was why he believes the increase in wholesale prices is unsustainable.
 

A mix of factors aided a quick recovery in used-vehicle values. First, the market was already primed for strong sales before the pandemic because of digital infrastructure investments—i.e., a move toward online selling—and younger buyers looking for cheaper vehicle options, according to Banks. Second, dealers have been scooping up used-vehicle inventory, particularly as the supply of new vehicles has slowed because of pandemic-related production pauses.

New Trucks May Be in Short Supply
"New-vehicle inventory is strained, and our forecast suggests it'll be even more strained before we move into full production of 2021 models, which won't happen until September or October, and then you're really going to have problems with trucks, especially in certain regions," Banks said. "In Texas, you'll be hard pressed to even find a new truck."

With high demand for used vehicles, the market was ready to absorb any sort of fleet liquidation from Hertz following the company's bankruptcy declaration in May. Some had predicted that with all the former rental cars from Hertz flooding the market, used-car values could take a hit.

So the value of used vehicles has been volatile, but there are a number of factors that could stop the upward trend in prices and make used vehicles cheaper for consumers. In fact, higher prices haven't directly affected buyers so far. Bernard Swiecki of the Center for Automotive Research said one reason they probably won't is that lease holders often had their terms extended this year because of the pandemic, and that will mean a jump in the number of vehicles coming off lease later this year.

Wait until Later in the Summer?
"Frankly, if I were in the market, I would wait to see what would happen in July or August," Swiecki said. "Because we've already seen a good amount of appreciation [in used-car values], the risk of too high a growth of prices seems fairly low, so I would just see how these vehicles coming off lease impact the market."

Swiecki also mentioned, as a "complete wild card," the idea of bringing back a cash-for-clunkers program has been floated recently. Critics of the program back in 2009 said that it caused a shortage of used vehicles, increasing their cost.

"It's not something I anticipate, but at the same time, politically, it's a hard time to rule out anything that you might see coming out of Washington," Swiecki said. "This is not a time when typical stuff unfolds typically." So, if you're thinking these are not ordinary times for car buying (or anything else), you're right.

This content is created and maintained by a third party, and imported onto this page to help users provide their email addresses. You may be able to find more information about this and similar content at piano.io