The Manheim Market Report for September 2021 showed that wholesale used vehicle prices have risen to an all-time high once again, and the increase isn’t expected to be at its peak yet. The Manheim Used Vehicle Value Index reached 204.8, up more than 27% from September last year.
Leading the way for wholesale price increases were vans and sport utility vehicles with value jumps of 40.9% and 28.2% respectively. Although passenger cars and pickup trucks grew at a slower rate, each segment grew well into the double digits.
The inflated prices for wholesale vehicles come as pre-owned vehicle sales have tumbled by 13% compared to September last year. Naturally, that’s due to limited inventory available from sources like the Manheim and Adesa auctions, as well as fewer trade-ins on new car purchases.
|Related: What’s the reason behind fluctuating wholesale values?
Still, the decrease in sales of used vehicles is nearly half as severe as the new vehicle sales slide, which is down 25% year over year in September. September SAAR was down to just 12.2 million – more than 4 million units lower than September 2020, and 5 million units lower than September 2019.
Used cars still selling extremely well
While new and used car sales alike have taken a hit, the used car market is still strong. American consumers remain hot on vehicle purchases, particularly the popular SUV and pickup truck segments. Although margins have been tighter with used car prices edging closer to the cost of hard-to-get new vehicles, tougher availability and fewer incentives continue to drive consumers to the used car market instead.
And despite margins constricting slightly in recent months, Cox Automotive’s chief economist Jonathan Smoke said that dealers are still making more on used cars than before the pandemic. He said, “Don’t worry about their margins. While they are being compressed a bit from the most recent trends, their margins are still substantially higher than what they were pre-pandemic.”
Concern about future inventory
Used car inventory is nearly back to normal levels, likely because dealers are stocking up for future selling seasons. Dealers will be leaning heavily on used car sales since new car inventory is dwindling, down nearly 75% from normal levels. And with the continued chip shortage looking to go well into 2022, it appears that a return to normal new car volumes is a long way off.
In a conference call on Thursday, Smoke said, “Basically, the odds favor more increases between now and spring because we’re still in a very supply-constrained market in total, in both the wholesale market and the new-vehicle market.”
Over the next several months, wholesale prices are expected to increase further as dealers look to fill gaps on their lots that the factories can’t replenish. While the tight inventory levels are currently ensuring profits for dealerships are at their highest per deal, a lack of inventory down the line could mean that overall profitability could decline for stores that aren’t well-stocked on vehicles.
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