A bidding war for a 2-year-old minibus? The used car market is “bananas” due to lack of supply
LAWRENCEVILLE, NJ – The 2019 Honda Civic that launched a used car auction earlier this month wouldn’t have been anything special before the pandemic. But under the watchful eye of car dealer Brad Wimmer, online auctions quickly became, to quote him, “bananas”.
As a new car, the Civic would have had a sticker price of around $ 21,000. But within seconds at the wholesale auction, the two-year-old model, with 4,000 miles, sold for $ 27,200.
Soon after, a Nissan Rogue went for what it would have cost new in 2018. A three-year-old Toyota Camry with big dents and scratches on its hood sold for $ 14,200, almost double what ‘she would have reported just a few years ago. And a 2015 Kia Sorento sold for $ 12,600, a staggering amount for a six-year-old car with 83,000 miles.
For Wimmer, owner of AutoLenders dealership, such high prices have become the norm at the weekly auction, where dealers across the country buy and sell used cars.
The dismantling of the used car market is the most tangible result of a problem that has plagued the global economy for the past year: a severe shortage of computer chips that has hampered auto manufacturing.
The lack of new cars on the market has also caused a shortage of used cars, raising prices and reducing sales. The crisis has created a political headache for the Biden administration, fuel inflation and cutting by more than two percentage points of GDP growth in the third trimester. It also hurts consumers, who face long waits for new cars and cannot fall back on the used car market as a low-cost alternative.
“It’s going to be really, really hard for consumers to buy a vehicle in 2022.. . you’re going to have to pay a very high price, ”Wimmer said looking at the auction, which attracted over 1,000 auto dealers to Manheim, Pa., every week, but since the pandemic has been unfolding mostly online.
Demand for chips, also known as semiconductors, is skyrocketing because more and more electronic products require that the components work. The pandemic has accelerated demand as consumers gobbled up new computers and household items. But the supply of chips is limited by the lack of semiconductor factories and through the process of several months required to manufacture the components.
This has forced automakers around the world to cut back on production because they cannot get enough chips to power all of the latest technology in their cars. The global auto industry will produce nearly 4 million fewer vehicles than expected this year due to shortages, according to consulting firm AlixPartners. In July, only 1.2 million new cars were on U.S. dealership lots, up from 3.5 million before the pandemic, according to data provider Cox Automotive.
With far fewer new cars on the market, consumer prices for used cars have climbed more than 24% in the United States over the past year, while prices for new cars have increased by nearly 9%, according to the Department of Labor.
These jumps also fueled staggering rental car prices and helped push U.S. inflation to a 13-year high of 5.4%.
Poorer households are particularly likely to feel the burden of more expensive used cars, said Michael Hicks, professor of economics at Ball State University in Muncie, Indiana. They often own older cars that are more likely to break down, but will have a hard time replacing them at current prices. , he said.
If high prices persist, they could also become a drag on employment. “If that’s still a story in October 2022, there could be a number of people struggling to get to work because they can’t find the cars they need,” Hicks said.
The price frenzy made for an “exhausting” car search, Elvalynne Pala said when picking up a 2018 Honda CRV at the AutoLenders dealership where Wimmer watched the auction.
“If you don’t get the car right away, someone buys it directly from under you,” said Pala, a resident of neighboring Bucks County, Pa. “I almost had the problem with this car. And it seems like people are buying without even seeing the vehicles.
She spent about $ 27,000 on her SUV, which has 23,000 miles. It was a few thousand dollars more than her budget, but the best deal she could find after weeks of researching CarMax and CarGurus, she said.
Another customer who arrived to browse the models, Gunjan Mukheja, said she started looking last month after her car was destroyed in an accident.
“I entered this auto market like, oh my gosh it’s worse than the home market,” she said. “It’s crazy, so crazy.”
One of the main factors driving prices up: Car rental companies for the first time became major buyers of used cars at auctions, instead of big sellers. That’s because they can’t get enough new vehicles and are desperate to fill their fleets, industry executives say.
Normally, Hertz and other rental companies buy new cars direct from manufacturers, receiving discounts as they buy in bulk. But automakers have recently pushed rental companies to the back of the pack and prioritized deliveries to dealerships that have customers on hold, said Grace Huang, president of Manheim, the company that runs the weekly car auction. ‘opportunity.
Almost all of the decent used cars at the Oct. 15 auction drew a flurry of bids from major car rental companies and national retailers such as Carvana, who had enough money to spare. outbid local dealers every time.
“Hertz, Carvana, Avis, Hertz,” Wimmer said as bids poured in for a 2019 Acura RDX. The car, which would have cost $ 37,500 when new, was ultimately sold to Enterprise for $ 40,200.
A two-year-old minivan sparked fierce competition before Hertz won it for $ 39,200, a few thousand dollars more than its original price.
While that cost might seem high, “they’re going to rent it out for $ 700 a day in Orlando,” Wimmer co-worker Greg Markus said. (Actual Hertz price for a seven-seater van in Orlando, Florida, with pickup in early November: about $ 416 per day or $ 1,769 per week, according to the company’s website.)
Hertz and Avis did not respond to requests for comment. Enterprise said it “will continue to work through all channels” to meet the demand for rental cars. “Auctions are one of our sources, but it’s a limited resource given our age and mileage requirements,” the company said in an emailed statement.
The flea and the ensuing shortage of automobiles have pushed up rental prices and prompted some travelers to cancel their trips. Amy Weisenburger, a financial professional near Buffalo, New York, was planning an August vacation in Alaska with her husband to celebrate their birthday. They booked flights and mapped out a route but gave up after looking unsuccessfully for a car.
When her husband searched various sites, the cheapest offer he could have found would have cost $ 3,000 for nine days. A few days later, Amy checked several pickup locations in Alaska but found no inventory at all.
As a last resort she tried Turo.com, a kind of Airbnb for cars that allows consumers to rent other people’s wheels. All she found were expensive offers for an older Honda Civic or BMW, which she said would have a hard time navigating rougher roads. “I was like, ‘I’m not driving a BMW in Denali,’” she said.
As new cars are scarce, many consumers buy their leased cars instead of returning them at the end of the lease. This cuts off a major source of supply for the used car market, according to Huang, the chairman of Manheim.
Supply constraints have left local dealers desperate for any vehicles, new or used.
A few doors down from AutoLenders, another dealership, Route 1 Chrysler Dodge Jeep Ram of Lawrenceville, has about half of its normal inventory in stock, said Chris Mazzeo, used car manager. With new vehicles scarce, the dealership is trying to get more used cars, but has to pay around 20% more than before the coronavirus pandemic.
Route 1 has removed ads offering to buy used cars from consumers even if they are not looking to buy a new vehicle, Mazzeo said. Other dealers in the region are doing the same.
Some customers are aware of the semiconductor shortage, but many are not, he said.
“The person who buys a car every 10 years thinks – and rightly so – hey, let me negotiate a new car,” he said. When they see the prices, some people think “this is a game we play. We’re just trying to stay in business.