There’s no obvious reason right now, to expect high used-car prices to moderate significantly any time soon, probably not through the first quarter of 2022, and it could be 2025 or even later before used-vehicle supply and demand return to normal, according to Cox Automotive.
“There’s a very low probability of prices being lower than they are right now, between now and the end of tax refund season,” in 2022, said Jonathan Smoke, Cox Automotive chief economist, in a webinar Sept. 30.
And where used-vehicle prices are right now, is extraordinarily high. Through the first half of September, Cox Automotive subsidiary Manheim reported wholesale used-vehicle auction prices increased 3.6% vs. August. That was also a 24.9% increase vs. September 2020.
Smoke said used-vehicle inventory is expected to remain tight for several reasons, and demand is expected to remain high.
That’s true, even if the current computer chip shortage starts to improve at the tail end of 2021, as Cox Automotive expects. Any improvement there would improve the ongoing shortage of new vehicles.
In turn, the new-vehicle shortage contributes to the used-vehicle shortage in a couple of ways.
First, fewer customers are trading in their used cars towards the purchase of a new one, because they can’t find the replacement they want, or because new-vehicle prices are too high.
Second, high new-vehicle prices are driving some new-vehicle intenders to buy used instead, and that’s contributing to high used-vehicle demand.
Smoke said it could take as long as five years for supply and demand to regain the balance, and the normal seasonal ups and downs, which the coronavirus pandemic upset, starting in March of 2020. “In our planning horizon, we don’t see in the next five years, until 2025 or beyond, before we see supply substantially increase,” he said.
A big factor continues to be the sharp drop in new-vehicle production in the spring of 2020, when auto factories around the world were largely shut down, to try and contain the spread of the pandemic. That was followed by a slow restart, followed by the computer chip shortage.
That divot in the new-car production will echo for years through the used-vehicle market, like the crater in new-vehicle production associated with the Great Recession created shortages down the line, in the used-vehicle market.
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October 01, 2021 at 03:02AM
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