For the first time, the quarterly used Average Transaction Price (ATP) has reached $25,410 in the US, according to Edmunds data. It’s no surprise to anyone in the auto retail industry that used vehicles are selling for more than ever, but the increase is likely more than any analysts saw coming.

Comparatively, ATP for used cars in Q1 2021 came in at $22,977. Q2 2021’s figures mark a quarterly increase of more than 10%, and more than 21% higher than Q2 2020’s $20,942.

The rise in used car ATP rests squarely on the lack of inventory coming out of parts-stricken manufacturing plants. No carmakers have returned to full pre-pandemic or pre-shortage production yet, and it appears it will take many months yet to regain the usual selection customers are accustomed to seeing.

Jessica Caldwell, Edmunds’ executive director of insights, said, “Tighter inventory and fewer discounts in the new car market are pushing shoppers to seek a reprieve in the used market, and this consumer behavior is what’s also driving used car prices to astronomical levels. Car shoppers are used to getting deals, and often far below the sticker price for new, so anyone returning to the car market for the first time in a while is in for some serious sticker shock.”

Used car prices likely to go higher yet

While it’s at an all-time high, used car ATP is likely to continue its ascent in Q3 as well, thanks to depleted inventory at dealerships, both for new and used cars. Fewer new vehicles are sitting on dealership lots, and as many as 80% of incoming units to dealers are sold before they arrive. Not only are vehicles selling for full retail but in many cases, well above MSRP.

Recently, a car shopper recounted their experience to the Wall Street Journal. Looking for a Kia Telluride with an MSRP of $45,000, he offered $3,000 over with the hopes of snagging the sought-after model in Boca Raton, Fla. Instead, the dealership wanted $10,000 over MSRP – $55,000 altogether.

Selling at above MSRP for new, many shoppers are choosing inflated prices on a used car instead. But the availability of used cars, especially the most desirable trucks, and SUVs, is waning too. That increased demand is pushing used car prices up.

New car ATP leveling off, but not truly representative

Edmunds is also expecting that the new car ATP will show much more modest increases through Q2, going up slightly to $40,827. But as you can see from the customer’s experience shopping for a Telluride, it isn’t due to more incentives or discounting. Rather, the leveling off seems to be related to the mix of new cars being retailed.

With high-priced trucks and SUVs in extremely short supply, the new car ATP is buoyed by a shift to lower-priced passenger cars or crossovers, or simply from buyers waiting on the sidelines until their desired vehicle rolls off the assembly line.

Caldwell says, “Pricey, optioned-out pickup trucks have been the darling of consumers and the primary culprit in boosting the industry average transaction price during the pandemic, but the well of inventory has finally run dry. Consumers who can be more flexible are buying more passenger cars and SUVs, and although they’re paying inflated prices for these vehicles, comparatively they command much less than their truck counterparts. Other shoppers are forced to sit out of the market until what they want comes back in stock.”

For auto retailers, extremely high-profit margins compared to one or two years ago are very welcome, and many are experiencing lucrative YTD profits. Pre-selling incoming units and keeping customers engaged rather than roaming to other stores will help keep the coffers full well into the second half of 2021 and into the new year.

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