Totally insane irrational price spike of used vehicles in serious easing mode.
By Wolf Richter for WOLF STREET.
Prices for used vehicles that sold at auction in August fell 4.0% from July and 12.5% from January’s peak, on a blended, mileage and seasonally adjusted basis, according to the used vehicle value index by Manheim, the largest auction house in the United States. But these wholesale prices, despite the declines, remain exorbitant.
Dealerships buy at these auctions to source vehicles to sell to their retail customers. Their concerns about what retail customers might be willing to pay are reflected in these price cuts.
Retail buyer interest in these exorbitant prices has faded, enough people have come to their senses and are now refusing to pay anything, and they realize they can drive what they already have for a while longer. a year, two or three. The volume of used vehicle sales fell sharply throughout the year, although the supply of used vehicles was sufficient.
And compared to the totally crazy prices of 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 prices for used vehicles are still up almost 50%. Prices have therefore fallen, but they are still very high.
Retail sales of used vehicles in August fell 9% year over year and 19% from August 2019, according to Cox Automotive, citing data from its Dealertrack unit, based on comparable store results. But July sales were even worse: down 29% from July 2019.
Sales of “Certified Pre-Owned” vehicles, which many buyers see as a cheaper alternative to new vehicles, in August were down 5% year-over-year and 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, downward pressure on prices was strong and a daily presence, forced on dealers by competition and by potential buyers who refused to pay anything.
But at the end of 2020, the whole mindset changed – when the inflationary mindset kicked in – and buyers were eager to pay anything, and dealers charged anything what and got it, and when the dealers bought the next batch of vehicles at auction, they too paid whatever, knowing they could pass on those crazy prices. But that is changing.
Although still relatively modest compared to pre-pandemic years, downward pressure on prices has been increasing throughout the year, according to the extensive car dealer sentiment survey, conducted on a quarterly basis by Cox Automotive. The current survey for the third quarter was released on September 8. The chart shows the growing pressures dealers perceive to lower prices; orange = franchise dealers (new and used); red = independent dealers (used only) who feel the greatest pressure to lower prices; blue = global (chart via Cox Automotive – Click on it to enlarge):
The utterly crazy and irrational price spike in used vehicles is now in serious unraveling mode because enough potential buyers have gone on a buyer’s strike. But prices have soared to highs so far, and so quickly, that a major drop will again make shoppers stand out as they perceive those lower prices as bargains, after the crazy spikes, but those prices may still be 40% higher than they would have been three years ago.
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