5 things to know about the hot used car market

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The reopening of the US economy and nagging pandemic supply shortages are pushing prices in the used car market to infinity and beyond.

Some lenders are cashing in big on overdue auto loans as the high demand turns the world of auto loans upside down.

Used vehicles sold on average 40% more in June than at the start of the pandemic in February 2020, according to data from JPMorgan.

Fewer borrowers are underwater on their auto loans, which means fewer people owe more than the car’s value when they trade it in.

Due to the acute shortage of vehicles for sale, cars behave more like houses, rise in value and earn good profits for their owners. The average price of a used car was $ 18,453 in June, up more than 34% from the same period last year, according to Manheim Inc.

“The hopeful prospect for buyers is that even if the prices are higher, your trade-in will never be worth more than it is today, and that can put you in a position to buy a newer car,” Lauren said. Donald, Senior Manager. accounts at PureCars.

Here are five things to know about the hot used car market.

Historical vehicle shortage

A historic car shortage combined with the indulgence of buyers has lifted the value of used cars by nearly 30% since June 2020, according to Edmunds automotive research.

Over the past six months, Johnson, Virginia’s Magic City Auto Group has reported steadily rising prices, and buyers keep coming in.

“I’ve definitely never seen this. And I think if you had a bunch of the brightest people in a room a year ago, nobody would have predicted that, ”said Cameron Johnson, a fourth-generation car dealership with nine franchises in Virginia.

A catastrophic shortage of microchips

Chips control everything on a car, from window motors to infotainment displays. The shortage of microchips is slowing automobile production around the world, stifling the supply of new models and pushing up their prices.

The chip supply problem is compounded by a year of suppressed demand from people who resumed venturing out after being locked up when the worst days of the pandemic appeared to be over, said Nick Woolard, senior analyst at industry to the TrueCar automotive pricing platform.

New car inventories in the United States were down 54% in June from the same month in 2019, according to Cox Automotive, whose auto companies include Kelley Blue Book and Manheim.

Car prices are expected to rise

The supply of new cars is expected to tighten in the coming months, which will increase the demand for used cars. Eventually the market may slow down, but it will take some time.

“If you need a car right now, they’re expensive and unfortunately all signs are that prices will continue to rise,” said Nick Woolard, analyst at TrueCar. “Now is a great time to trade in a car or sell a used vehicle, because used vehicles go up in value, which doesn’t happen that often. “

All vehicles sell

Popular models are so expensive that consumers have become less demanding and are choosing vehicles they would not have thought of before.

For example, some buyers who wouldn’t have looked for a raised pickup ended up buying one because they couldn’t get the model they were looking for, according to Chad Staples, director of Arizona-based Lifted Trucks.

Vehicles that may have been on the shelves before because of DIY paints such as orange, bright green, bright yellow or Tiffany blue are now selling, Staples added.

The used car market is starting to cool down

There is some good news. The prices seem to be going back to what they were before. Wholesale used car prices – the amount car dealers pay for cars – fell in the first two weeks of July.

Retail prices are expected to follow soon, possibly in the next few weeks, and buyers will start to notice lower car prices.

There are already signs that the market is stabilizing, prices drop as low as $ 2,000 for a used car during the month of July as the supply of new cars begins to increase.

“New car inventories are going to improve continuously over the next few months as the end of the year approaches,” said Jeff Dyke, president of Sonic Automotive, which operates 100 dealerships in the United States.

“This will reduce the number of inventory issues that occur on the used vehicle side,” Dyke said in an interview with CNBC’s “Worldwide Exchange”.

However, it will still take a long time to get back to normal, said Charlie Chesbrough, senior economist at Cox Automotive.



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