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This went on for several months: Used car prices skyrocketed from stunning to stunning, and just when I thought prices couldn’t soar any further, they did.
According to used car data, used car auction prices in the US rose 8.3% in April compared to March, up 20% year-to-date, 54% since April 2020 and 40% since April 2019. a value index published today by auction operator Manheim, a subsidiary of Cox Automotive. Everything is mixed up in the used car market:
In the 13 months to September 2009, the price spike was completely broken by previous record spikes, including a cash-for-clunker scheme that removed an entire generation of serviceable old cars from the market.
Dealers who buy cars at auction to replenish their inventory are faced with a limited supply and many other dealers are bidding on the same cars. So they cursed inwardly, jacked up prices to get at least some supply, and hoped that they could pass on these absurd prices and huge profits to consumers. Retail prices typically lag wholesale prices by about six weeks.
Consumers are willing to pay these ridiculous prices rather than go on strike: Cox Automotive estimates used car retail sales rose to a seasonally adjusted 22.4 million year-on-year in April. Stemis made the perfect down payment.
My intuition says that such bursts cannot be sustained. If consumers hesitate about these prices and call a buyers’ strike, then after the stimulus wears off and these crazy prices ease, dealers will sit on some overpriced item – collateral to fund their floor plan – if that could lead to mess by doing so.
According to Cox Automotive, wholesale inventory at the end of April fell to 17 days of sales, while 23 days of delivery is normal. Retail stock of used cars is 33 days, compared to the usual 44 days.
The seeds of the used car supply problems were sown last year when the car rental business collapsed and car rental companies reduced their fleets by selling existing cars and reducing orders for new cars. The latter held back the influx of new cars into rental fleets last year and this year.
But now the rental business is recovering as people start traveling again and rental cars are in short supply.
The supply shortage is hard to make up now, as semiconductor shortages hit automakers earlier this year. They closed factories and canceled shifts; they made it a priority to produce high end cars to make up for the loss in numbers. Ford announced that its global production could fall by 50% in the second quarter. Under these conditions, low-income fleet rental sales were suspended. Rental car fleets struggled to get new cars.
Avis warned in its quarterly 10-Q report to the SEC on May 4 that it could not get enough vehicles for its fleet:
“We face risks associated with automotive suppliers, including a global semiconductor supply shortage.”
“For various reasons, including due to the closure of production facilities or for other reasons, we have experienced and may experience additional delays in receiving new vehicles from automakers.
“In particular, the global semiconductor shortage is having a wide-ranging impact on many industries, especially the automotive industry, which is affecting several automakers that supply us with vehicles.
“For example, some car factories in North America and other countries have stopped or reduced car production due to a shortage of semiconductors used in car manufacturing.
“As a result, shortages in semiconductor supplies have had, and are expected to continue to have, an impact on new vehicle shipments, which could make it difficult to meet consumer demand.”
Other rental fleets are facing the same problem: manufacturers who are having serious problems assembling cars due to a shortage of semiconductors are putting them on the back burner.
In the first four months of 2021, fleet sales fell 48% from 693,000 in 2019 to 360,000 this year, compared to the same period in 2019, according to Car Rental News.
Rental car fleets now hold the cars they own for longer and put them up for auction with higher mileage. According to Cox, the average mileage of rental-at-risk cars sold at auction in recent years (those cars not in the manufacturer’s buyback program) is mostly between 40,000 and 50,000 miles. But in March, average mileage jumped 12,000 miles to 67,000 miles from an already high mileage in February. In April, the average mileage soared to 82800!
Even with the dramatic increase in mileage, the average price of these rented risk units – that’s how crazy the market is – jumped 32% year on year.
Rental fleets are currently the main buyers at auctions, adding to the pricing pressure. They always regularly buy some cars at auctions to meet local needs, this is nothing new. But now it is happening on a larger scale.
“Our Fleet Purchasing Group is hard at work getting more vehicles, both new and low-mileage used, across all channels to meet growing demand,” Bloomberg said in a statement.
A Hertz spokesperson told Bloomberg that the company “purchases low-mileage used vehicles from a variety of sources, including auctions, online auctions, dealerships and vehicle leasing programs.”
On the customer-facing side of their business, rental car fleets make hay when the sun shines and raise rents in the market where possible—adding fuel to the inflation fire, you guessed it.
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Just to show you how crazy it is that I own a 20 year old Infiniti that hasn’t been out of the garage for years and the thieves were caught by the GPS. Those involved say car theft doubled in 2021.
I’m sure if the US raised the age limit to 30, there would be a lot of used cars ready to be imported. 
I am 65 years old and my parents are still alive. They have a low mileage car and a medium mileage truck. Both will be inherited or sold. This seems to be a common occurrence as baby boomers get older.
It means “dealer”, like in Joe’s Used Cars, not the Ford dealer you worked for, because they seem to leave the best stuff there for resale, right? Maybe dealer/dealership SHIP is jargon I’m missing here? Should some dealers also buy the deficit at the auction? I think this is my real problem (this time I read the article twice). Also in the early 80s, I went to an auction with a guy with a “permit to enter/purchase” and his father. They bought the front and back of a whole rabbit and boiled them together as one of their ventures. In a huge muddy field around Sears Point IIRC. (Bought and repaired a wrecked Honda 500 4). So the second question is, is the auction you’re talking about invisible, or are the bidders wandering the aisles? Many cars are in good condition, just dusty.
Dealers who buy at auction are independent dealers or franchised dealers. or anyone else who has been approved for purchase at the auction.
Not 30 years, but 25 years. Some states have various other requirements. Here is some information: https://usacustomsclearance.com/process/guide-to-importing-cars-to-usa/
Thanks Mike This is a damn good site to add to my growing collection of resources. Anyway, I got the CA response I was expecting.
In Washington, the number of car thefts has skyrocketed. An advertisement near a subway bus says: “When you jump out, they jump up” (something like that). Cars are not that trendy, just ordinary car models. I read an article in NPR (I read NPR) that said that even catalytic converters can make money on older cars. The most frightening aspect was that I was arrested with a childlike face of a teenager. Probably just for a trip or planning a shipment to Mexico City. who knows sir?
Cobalt, CATS has been stolen from DC for years, what an interesting place in our nation’s capital. Have you noticed a change in the prices of platinum and palladium over the past two years? Wish I bought some!
DWY CAT Theft has almost universally become a “trade” crime. They compete to see who can get them out the fastest with a battery powered angle grinder and a long arm. Guess the current “champion” in about 10 seconds from start to finish!
Modern cats are “triangular”. They used rhodium (probably cerium in the 90s) as well as platinum and palladium to perform very complex chemical sequences. I suspect that the stolen cats were only melted down for money, due to their intricate ceramic honeycomb structure. As spare parts they are more valuable. New they cost from 1000 to 2000 dollars and more. Obviously, newer cars can be stolen from better cars, and hybrids are also preferred because they pass significantly less gasoline through them.
These are the social costs of extreme inequality in income and net worth… expect more as things get worse. A “social tax” that goes too far. Unfortunately, the poorest segments of the population, who cannot own an apartment or a house with a garage, suffer the most, exacerbating the problem.
Catalysts in my area continue to steal. Anyone who owns a car like mine (Honda CRV 2000) should budget for a new car.
Last week, a colleague of mine had a decrepit van stolen from her that had been an idol on her property for about 15 years. So far it has been useless.
This is crazy, my neighbor had his 15 year old F150 stolen a month ago while on a trip to Home Depot. The skyrocketing cost of used cars has made very bold thieves possible.
In addition, it is almost impossible for a non-professional to steal a Hyundai. I suspect this is why a 15 year old truck with a high resale value is the main target.
Yes, in broad daylight. The funny thing is that the police took the report and told my neighbors that even if they caught them, the thief would get a fine and that’s it.
It seems like a joke, but it’s not. Imagine if you were just a contractor starting a trade and you had an old truck and all of a sudden it was stolen and your livelihood was gone.
The best “anti-theft” device on an old car is the switch coil and plug wires on the cover of the distributor (we are talking about old cars here). It will not start. If you lift the hood, it looks “normal”. Uncomfortable, yes. But it works.
Slim Jim is ubiquitous, versatile and easy to learn. Also, I stole battery tools from a ’92 Nissan (no side windows, they were too light) and smashed the windows. In the garage under my apartment and in the big complex. Maybe they put a big sleeping bag on it to muffle the noise? Likely to be an eligible resident. Desperate people do desperate things anyway, and I bet a lot of “professionals” want to start their own American dream and just need to save money. Entrepreneurial spirit…
I still don’t understand how the lack of a pay rise to warm up the economy can lead to inflation. It’s all about supply and demand, which is a temporary anomaly.
Personally, I see this as a huge bull trap. The herd is running towards inflation/reflation/new cycle just before it ends in a terrible deflation… all sovereign debt can be printed out as “aid”… and a very rich/central bank buying assets at extremely low prices.
Global Crossing was an international backbone telecommunications provider that went bankrupt 20 years ago and was bought by common parasites. The sudden and very cheap telecommunications connection to India spawned the Indian call center industry. And the decline of the American call center.
The “natural” business cycle destroys naive investors, enriches parasites, and cuts jobs. But it’s some kind of economic law that the rich eat the rest like gravity, so it’s all good.
Post time: Aug-29-2022