Need a used pickup truck? Forget it, or pay out of your nose for it. But even spurned mid-sized cars are seeing stunning price increases.
By Wolf Richter for WOLF STREET.
Prices of used cars and trucks of up to eight years old that were sold at wholesale auctions during the week ended March 21 jumped by 3.1% from the prior week, according to data by J.D. Power on Friday. Over the past four weeks, prices have spiked by 8.3%. Compared to early March 2020, just before the end of the Good Times, prices have spiked by 19.5%:
When you talk to dealers that came back from auctions to buy vehicles to replenish their inventories, they tell you with an exasperated voice about prices being bid up to ridiculous levels, particularly on trucks. But they’re in the business of buying and selling vehicles, and they have to replenish their inventory, and so they’re buying, and in order to buy, they have to bid up prices, and they’re planning to pass those ridiculous prices plus adequate profits on to their customers.
And in a big change with past practice, the astute American consumer that haggled and shopped to get the best deal has not been resisting the price increases that started last year — but has been paying them.
Manheim, the largest wholesale auto auction operator and a unit of Cox Automotive, reported in its mid-month update that wholesale vehicle prices mid-March had jumped by 3.75% from February, based on its Used Vehicle Value Index (adjusted for mix, mileage, and seasonal factors).
The index is now 22.3% higher than in February 2020, before all heck broke loose, the largest 13-month increase in the data going back to 1998, beating the 13-month surge of 20% in 2010, following the cash-for-clunkers program that had taken a whole generation of serviceable older used vehicles off the market:
Need a used pickup truck? Forget it. Or pay out of your nose for it. Prices across the major categories have exploded – but amid these price spikes, pickup truck prices stand out with a stunning bang-your-head-against-the-wall price spike of 43%.
Maybe buy a new truck instead? Well, in theory. In reality, inventories of new pickups are tight and are now also tangled up in semiconductor shortages that have caused assembly plants to cut production.
But even in categories that Americans have long pooh-poohed and spurned, auction prices soared, up 15.9% for mid-sized cars up by 10.5% for compact cars:
I’m wondering how the Bureau of Labor Statistics, which puts together the CPI, will adjust away in its retail used vehicle CPI those price spikes when they filter into retail sales. Its infamous hedonic quality adjustments will have to be whipped into frenzy. Its used vehicle CPI for February had nevertheless surged 9.3% year-over-year.
Sales volume at auctions around the country has been running below the levels before the Pandemic, with sales in the range of 90,000 vehicles per week, compared to about 110,000 vehicles per week early last year during the Good Times. But they’re ticking up. Last week, auction sales exceeded 94,000 for the first time since August, according to J.D. Power:
Manheim reported in its mid-month update that used vehicle inventories are somewhat tighter than normal. Wholesale supply at auctions stood at 19 days of sales, when 23 days’ is normal. Used vehicle retail supply on dealer lots stood at 34 days of sales, also below normal levels.
A supply issue has crept into the used vehicle market via new vehicle sales. Fleets, largely rental fleets, represented about 20% of new vehicle sales in 2019. Over 3 million vehicles went to fleets.
But in 2020, sales to rental fleets collapsed, as rental car companies slashed their orders. Rental fleets shed some of their older units. But the way they brought down their fleets was by slashing the flow of new units coming into their fleets.
Because the vehicles in their fleets were driven less and accumulated fewer miles, given the plunge in demand from airport rentals, they didn’t need to replace them as quickly with new vehicles as they would normally. The slower pace at which they’re offloading their vehicles is now lowering supply on the wholesale market.
But the wholesale market is still fairly well supplied. It’s not like there is a shortage of wholesale units. It’s just that prices have gone nuts.
Dealers are not awash in inventory by any means. And as always, the hottest models are hard to come by. But retail sales of used vehicles since last summer have been running below 2019 levels. So it’s not a tsunami of demand for used vehicles that is causing these blistering price spikes.
But there is the fact that consumers are now going along with price surges on dealer lots – rather than going on a buyers’ strike as they have done in the past. And the fact that they’re paying those prices indicates that something big has changed at the consumer level, that consumers are now willing to eat those price increases, which makes those price increases at all levels possible.
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