Detroit. Buying a used vehicle in the United States cost much more last month than it did before the arrival of the coronavirus pandemic, and that factor, almost exclusively, caused the slight increase in inflation in September.
It is the fault of the pandemic, which completely altered supply and demand, triggering prices.
The good news is that inventories are being replenished, and prices are starting to drop.
“The law of supply and demand worked,” said Earl Stewart, owner of a Toyota dealership in North Palm Beach, Florida. “I think things are getting back to normal.”
When the new coronavirus made its way into the north-central and southern industrial regions of the United States in March and April, it forced automakers to close their plants, as did many of the dealerships. New car sales plummeted. With few used cars being delivered on account of new ones, and leases being extended, there was a shortage of pre-owned vehicles.
At the same time, automakers weren’t producing many low-cost models, forcing many of the buyers to turn to the used car market. Additionally, people who were wary of going back to public transportation ended up buying vehicles, many of them armed with government stimulus checks for the down payment.
Additionally, lenders had moratoriums on vehicle repossession, reducing another source of used cars, said Alex Yurchenko, senior vice president of data science for Black Book, an auto industry analytics company that helps dealerships determine the price of the vehicles.
As a result, the sales price for a used vehicle that is up to 10 years old rose more than 9%, from $ 19,800 in May to $ 21,600 in September, Yurchenko reported.
“It is a perfect combination. A higher demand than usual and little supply. Prices just skyrocketed, ”he added.
It took auto companies longer than expected to resume production after pandemic-related shutdowns in March, in part due to the lengthy restart process in some parts of the supply chain, Yurchenko said.
With few people trading in their used car for a new one, Stewart and other sellers were forced to enter the wholesale auction market to purchase used vehicles, driving up prices. Stewart said he was unwilling to make large outlays for fear of losing money, so his dealership waited.
Now, new car production is practically back to normal, but inventories are yet to be replenished due to huge demand, especially for pickups, said Jeff Schuster, senior vice president at LMC Automotive, a consulting company.
“Everything they have made has been sold,” he said.
That has pushed the price of new cars to historic levels, leaving out low-income people who have to turn to the used car market. JD Power reported that the median price of new vehicles hit an all-time high of $ 35,655 in September.
But the used car market begins to regularize as people start buying new vehicles. New car sales fell 9.7% in the third quarter, much better than the 31% plunge in the April-June period.
“Because so many new cars are being sold, there are more used vehicles available, so that takes the pressure off us from going to auctions and having to overpay,” Stewart said.
The average retail price of used cars has fallen by $ 100 so far in October compared to the previous month. Yurchenko predicts that the downward trend will continue at least until the end of the year, except for some unforeseen events related to the coronavirus.
So far this year, wholesale of used vehicles has fallen 16% in the first nine months of 2019, Yurchenko said.
But he and Schuster say the smartest thing to do is to hang on to buy a used car whenever possible, as prices will have to fall further by the end of the year.
“If you’re just shopping, I’d wait,” Schuster said. “I would let inventories replenish a little.”