Totally Crazy Irrational Price Spike of Used Vehicles in Serious Unwind Mode.
By Wolf Richter for WOLF STREET.
Prices of used vehicles that were sold at auction in August fell by 4.0% from July, and are down by 12.5% from the peak in January, on a mix-, mileage-, and seasonally adjusted basis, according to the Used Vehicle Value Index by Manheim, the largest auction house in the US. But these wholesale prices, despite the declines, remain sky-high.
Dealers buy at these auctions to stock up on vehicles to sell to their retail customers. Their concerns about what retail customers might be willing to pay is reflected in these price declines.
Interest by retail buyers in these sky-high prices has waned, enough people have come to their senses and now refuse to pay whatever, and they realize that they can drive what they already have for another year or two or three. Used-vehicle sales volume has been down sharply all year – though there is adequate supply of used vehicles.
And compared to the totally crazy prices a year ago, wholesale prices in August were still up 8.4%:
And compared to August 2019, before the crazy price spike took off, wholesale used vehicle prices are still up by nearly 50%. So prices have come down some, but they’re still crazy high.
Used vehicle retail sales in August fell 9% year-over-year, and were down by 19% compared to August 2019, according to Cox Automotive, citing data from its Dealertrack unit, based on same-store results. But July sales had been even worse: down 29% compared to July 2019.
Sales of “certified pre-owned” vehicles, which many buyers see as less expensive alternative to new vehicles, in August were down by 5% year-over-year, and by 18% from August 2019, according to a separate report from Cox Automotive.
And dealers are starting to feel pressure to lower their prices. Before the pandemic, the pressure to lower prices was high and a daily presence, forced on dealers by competition and by potential buyers that refused to pay whatever.
But in late 2020, the entire mindset changed – as the inflationary mindset kicked in – and buyers were eager to pay whatever, and dealers charged whatever and got it, and when dealers purchased the next batch of vehicles at auctions, they too paid whatever, knowing they could pass on those crazy prices. But this is now changing.
While still relatively modest, compared to the pre-pandemic years, the pressure to lower prices has been growing all year, according to the wide-ranging sentiment survey of auto dealers, conducted on a quarterly basis by Cox Automotive. The current survey for Q3 was released on September 8. The chart shows the increasing pressures that dealers perceive to lower prices; orange = franchised dealers (new and used); red = independent dealers (used only) who feel the biggest pressure to lower prices; blue = overall (chart via Cox Automotive – click on it to enlarge):
The totally crazy and irrational price spike of used-vehicles is now in serious unwind mode, as enough potential buyers have gone on buyers’ strike. But prices have spiked so far, and so quickly, that a major decline will bring out the buyers again as they perceive those lower prices to be great deals, after the crazy spikes, but those prices may still be 40% higher than they’d been three years ago.
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