Was it finally a “peak of madness” in the prices of used vehicles?

0

All kinds of crazy spikes in the used vehicle wholesale and retail markets have peaked, but by little.

By Wolf Richter for WOLF STREET.

Dissecting and reporting the insane surge in used vehicle prices over the past 10 months has been quite a journey for me, having spent a decade working in the automotive industry. I had never seen anything like it before, with year-over-year price spikes of over 30% leading to the crazy situation where some wanted used models a year ago sold for more. expensive than the new model because people could not buy the new model because it was sold out due to semiconductor shortage.

But we may have finally seen a nutty spike. Dealers and customers can finally breathe deeply. A month ago, I reiterated my deep feelings “that these crazy price spikes can’t last long, and part of that will wind down eventually, and therefore, they sort of fit the definition of the Fed of “temporary”, but they will not turn back. where they had been.

In its weekly auction index, JD Power noted that price increases for used vehicles sold at auction had eased at the end of May. Then, for the week ending June 20, he noted the first week-over-week price drop, after 24 straight weeks of often large price increases.

About 80,000 vehicles were auctioned that week, according to JD Power. That was down almost 30% from the same week a year earlier and well below the April and May average.

In its mid-June update, Manheim, the largest auto auction operator in the United States and a unit of Cox Automotive, reported that prices had risen only slightly from May and started to weaken.

Today, Manheim reported that for the entire month of June, its used vehicle value index was actually down 1.3% from May, the first month-over-month decline in year, but was still up 34% from June of last year. This early evidence suggests that the nutty woodpecker may have gone as far as it can get:

Pickup trucks were still the biggest price hikes, but June’s 49.5% year-over-year price hike in June, mind-boggling as it might sound, was down from the 70% increase year-over-year in May, peaking at 78% year-over-year in April. These are just puzzle numbers:

Sales volume also declined on the retail side. In June, used vehicle retail sales fell to a seasonally adjusted annual rate (SAAR) of 21.3 million vehicles, down 7.8% year-on-year and 2.7% from May .

Supply, both retail and wholesale, continued to recover to normal levels. The retail offer at the end of June increased to 41 days, compared to 38 days in May (44 days = normal); wholesale supply increased to 20 days in June, down from 19 days in May (23 days = normal).

This graphic of Beetle Automotive the quarterly conference call and today’s presentation show the used vehicle supply by week of each year. The big explosion in 2020 from week 12 to week 18 happened during the 2020 lockdown when sales volume plummeted. The yellow line, retail offer in 2021, shows how the supply has grown in recent months to end in June just a bit below 2019 (gray line):

The resale values ​​of used vehicles over the past 10 months have been another headache. They blew it up. They have jumped across the board for all ages, with prices for newer vehicles rising the most. According to Cox Automotive, based on data from Manheim, the average resale value of one-year (1-year) vehicles jumped $ 6,718 year-to-date through week 26. Even the value Average resale of 10-year-old vehicles jumped a further $ 1,349. :

In today’s presentation, Cox Automotive also shed a different light on the curious phenomenon of sought-after low-mileage used vehicles suddenly selling for more than their new counterparts – because the new models have been sold. due to the shortage of semiconductors. .

The graph below presents two indices: the average transaction price (ATP) of new vehicles set at 100 for January 2012; and the unadjusted Manheim used vehicle value index, also set at 100 for January 2012. The ATP index had risen slightly faster than the used vehicle value index until mid-2020 , when the prices of used vehicles started to climb.

And there’s another mind-boggling one: a spike in the average mileage of vehicles that rental car companies have auctioned off.

Before 2020, rental fleets bought more than 2 million new vehicles per year. But in 2020, as demand for airport rentals plummeted, rental companies collapsed selling vehicles and cutting orders for new vehicles. In 2021, when travel took off and rental fleets needed cars, automakers were hit by the semiconductor shortage and favored high-profit retail sales over low-profit fleet sales. margin. And rental fleets, running out of vehicles, held onto what they had much longer.

Rental fleets dispose of some of their vehicles by reselling them to automakers under programs where the automaker is at risk for resale value; and they dispose of the remaining vehicles by selling them at auction or on their own retail lots. With these units, fleets bear the risk of resale value.

The mileage of these “at risk” rental units has been increasing for years. Then came the rental vehicle shortage of 2021, and average mileage skyrocketed. As of May 2021, the average number of miles on risky units sold at auction had double Year after year. But here, too, the peak seems to have reached its peak: in June, it reached a still astronomical level of 86,888 miles.

Vehicles are a discretionary purchase for most people. Most people can continue to drive what they have now for another year or two. They buy today because they want to buy. If they don’t want to buy, they can easily wait. And they did it en masse during the Great Recession, when vehicle sales slumped and remained weak for years.

The kind of madness that has been happening since last summer normally resolves itself long before it gets this far. Normally, people go on a buyer’s strike, which ends the price spike before it starts. It didn’t happen this time. Instead, resellers and retail customers struggled to position themselves to pay ridiculous prices. But it may have finally gone as far as it’s going to go.

In the future, lower prices are likely, but they will only go down from the crazy peak of the peak. It is highly doubtful that prices will return to levels close to February 2020 levels. They will likely drop some, find an even much higher base than in February 2020, and then go higher from there.

Do you like reading WOLF STREET and want to support it? Use ad blockers – I totally understand why – but you want to support the site? You can make a donation. I really appreciate it. Click on the beer and iced tea mug to find out how:

Would you like to be notified by email when WOLF STREET publishes a new article? Register here.

Excellent information on installing a metal roof on an existing building.

Product information is available at Classic metal roof systems, manufacturer of beautiful metal roofs.

metal roofs.

Leave A Reply

Your email address will not be published.