Anybody shopping now for a vehicle knows it is a seller’s market. A shortage of new cars has rippled out and created a frenzy in the used-car market. The prices of some used vehicles have soared above the original sticker price. It’s crazy.
“We’ve never seen anything like this,” said Matt Trapp, a regional vice president for Manheim Auto Auctions, the largest vehicle auctioneer in America, which was founded 76 years ago in Lancaster County. It is now owned by Cox Enterprises in Atlanta and resells nearly six million vehicles a year from about 80 locations in the United States. “The climb in vehicle values has been unbelievable.”
The used-vehicle market has gone from ice cold to red hot in a little more than a year.
During the early stages of the COVID-19 pandemic, vehicle rental companies and fleet owners unloaded large numbers of cars to auction houses such as Manheim, causing prices to sag and inventories to bulge. Wholesalers such as Manheim — it sells only to dealers — had an estimated 149-day supply on hand on April 9, 2020 (it’s now down to 20 days).
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During the pandemic, vehicle manufacturers also shut down, reducing the influx of new vehicles in the market. As the pandemic subsided and the economy revived, the pipeline of new vehicles has been unable to keep pace, hampered by a shortages of labor and parts, including computer chips. Meanwhile, the market reabsorbed the glut of used cars from a year ago.
“With the supply chain disruptions and everything else factoring into it, I don’t think we could have even imagined getting to a peak where we just were,” Trapp said.
Now car dealers can’t get their hands on enough inventory to meet demand.
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Dealerships that formerly carried mostly new vehicles on their lots now offer mostly used vehicles because there are so few new ones. The used cars they offer tend to be older, with higher mileage than they were a year ago. Yet they sell more quickly.
Even older, higher-mileage vehicles are selling at record levels, according to Edmunds, the vehicle market analyst. Used vehicles with 100,000 to 109,999 miles on the odometer fetched an average of $16,489 in June, up 31% from $12,626 last year. Pickup trucks are the hottest commodity: Their prices are up more than 40% over last year.
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Click here to switch to the full articleTrapp was on the phone the other day with a dealer who was so desperate to acquire used vehicles to resell that he paid more than the original manufacturer suggested retail price (MSRP). Cars are actually appreciating in value.
“He was talking about acquiring vehicles over original MSRP,” Trapp said. “So he’s buying used vehicles — one-year-old vehicles with a couple thousand miles on them — for more than the original sticker price on them 18 months ago.”
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Buyers who do not absolutely need a vehicle now are best advised to delay their purchases. New-vehicle prices hit an all-time peak in June, up $2,527, or 6.4%, from a year ago, according to Kelley Blue Book. Manufacturer incentives have practically disappeared. Remember rebates?
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Manheim said that used-car prices on the wholesale market peaked a few weeks ago, though retail prices for second-hand vehicles will take some time to subside.
“While there might not be as much momentum as before, the values are certainly still elevated,” said Ivan Drury, senior manager of insights for Edmunds. Dealers paid dearly to acquire inventory, he said, “and it might take a while before we see dealers lowering their asking prices.”
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Many experts say the markets are likely to remain imbalanced for more than a year. Much depends upon when new car manufacturing catches up.
“A true restoration toward a more normalized market is at least a year away,” Drury said in an email. “Even once new production is back into full swing, the trickle-down effects will take quite some time to be reflected in the second-hand market.”
On the seller’s side of the market, owners of older cars might be surprised at the value of the vehicle, Edmunds said in a statement this month. Clunkers with more than 100,000 miles on them are soaring in value.
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“Consumers with an old truck sitting in their driveway are in the best position to take advantage of this wild market,” said Drury.
The coronavirus pandemic not only upended the market for used vehicles, it also forced wholesalers such as Manheim to adapt to a new world of no-contact online buying and selling.
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“We made the decision to go all digital and so buyers can still interact in the marketplace but they’re doing it from their desktop,” Trapp said.
Selling vehicles online was nothing new for Manheim. Its original auction in Lancaster County grew so large in the early ‘60s — it was sold to Cox in 1968 — that Manheim introduced closed-circuit television of the auction lines so that buyers could monitor the action remotely, though they still had to be at the physical location in Pennsylvania.
In 1994, Manheim launched the first live satellite auction, and two years later, became the first in the industry to give dealers online access through the World Wide Web to auction inventories, sale calendars, and market. A year later, Manheim Online launched, and was named one of Top 10 e-commerce sites by PC Week.
Manheim offers dealers a static marketplace, similar to the buy-now fixed price eBay market, and live auctions that are simulcast on a live video stream so bidders can participate in real time. Some dealers can also sell directly from their own lots via Manheim’s online platforms.
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By the time that the pandemic erupted, Manheim was conducting about 50% of its business online, but immediately closed all locations to clients and operated with limited staffing. By June, the online audience for simulcast auctions hit about 20,000 per day, and the company recorded 1 million digital transactions from January through May, even though the sales market overall was slow.
By November, Manheim began allowing dealers to return to live auctions again.
“What we’ve seen is that a lot of that digital shift has held — a lot of the dealers still prefer to do business with us across our digital channels,” Trapp said. About 80% of its business is now conducted online.
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A year ago, Manheim was laying off workers in Pennsylvania when it shut down its live auction. Now it faces a reverse problem — like many other businesses, Manheim now faces a labor shortage as business picks up again.
“We need more bodies and it is a very difficult environment in which to hire folks,” said Trapp.
Much of its workforce is part time, concentrated around auction days. Though most of its business is conducted online, until automobiles themselves become virtual, Manheim still sells a tangible asset that needs to be cleaned, serviced and moved around by human labor.
“A lot of our labor is centered around driving vehicles around the lot,” said Trapp. “I mean it’s a dominant part of our business — you still have a big hunk of metal that’s got to get moved, and somebody has to get in the seat in order to move it.”
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