The “frenzy” of 2021 won’t be masks, vaccines or reopening the economy, it will be the consumer car buying spree for both new and used vehicles.
Pre-owned vehicle sales bested previous records this spring. Now sales of used vehicles has slowed to more normal levels, Cox Automotive’s Chief Economist Jonathan Smoke told WardsAuto.
“We have to adjust the frame of reference from the spring to a more normal situation, but there’s still a high demand and strong market,” he said in a review of Cox’s quarterly Manheim Used-Car Index report.
High demand amid a new-car inventory shortage has led to used-car inventory shortages too. Increased sales continue as consumers spend their federal government stimulus checks, tax-return refunds and extra COVID-related unemployment benefits.
Some consumers paid more for a two-year-old used vehicle than that vehicle retailed for new during the frenzied buying cycle. It appears vehicles are returning to more normal prices with values that depreciate with age.
Wholesale price trends for top-selling vehicles at Manheim auctions showed a 1.3% decline in June compared with May, but prices were up 34.2% compared to June 2020.
Models seeing big year-over-year gains include: a 2018 Nissan Rogue CUV with all-wheel drive, which went for an average of $21,000 at auction on June 1 compared with $16,750 in June 2020; and a 2018 Ford Explorer at auction which went for $31,200 in early June compared with $25,700 the year prior.
“People will see better deals now than they did in the spring,” Smoke noted. “Normal pricing patterns depend on the absence of desperate sellers or desperate buyers. When you have equilibrium, you have neither of those. When used-car lots are full, you have less of a frenzy.”
Smoke describes the recent high used-car prices as “abnormal” and predicts a return to normal very soon.
But because of the spring’s feverish buying patterns, Smoke predicts sales of 2021 pre-owned vehicles will hit 39.3 million in the U.S. by year’s end, a 26% increase on the Manheim Used-Vehicle Value Index.
“Used-car prices appreciated dramatically in six months,” says Kevin Chartier, vice president of Manheim Consulting. “They were getting close to bumping up to new-car prices. When the new-car inventory levels increase, we’ll see equilibrium in used-car prices.”
Cox’s online automotive marketplace websites Autotrader and Kelley Blue Book “are seeing no slack in demand,” Smoke says.He attributes the demand to society being “more dependent on vehicles.”