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Used car prices fall slightly after hitting record highs

Dearborn, Michigan (AP) —Anyone who, for months, wanders into a dealer’s parcel looking for a used car may be allowed to double-take.

Prices have skyrocketed by more than 40% from levels just before the outbreak of the viral pandemic, averaging close to $ 25,000. Vehicle supply has declined. And do you want to negotiate the price? So please do your best.

But now, a fragment of hope has emerged. The seemingly endless rise in used car prices seems to be nearing its end.

No one should expect a bargain. The average wholesale price paid by dealers is gradually declining, but may remain close to record levels. So is the retail price of consumers. The supply remains tight. Demand has eased a bit, but the stable flow of buyers can lead to unusually high prices for a few years or more.

“This is a short-term fix,” suggested Paul Sugars, a used car sales manager at Jack Demar Lincoln in Dearborn, Michigan. “Buyers are sitting on the fence waiting for what happens.”

You should know about sugar. As internet and walking traffic at his dealership has declined in the past few weeks, he has begun to lower the prices of some of his 70 used cars in his lot. Now he says buyers are starting to return.

One of them is Jessica Pitts of Detroit, who started shopping for used cars last year after a car broke down. However, Pitts postponed the purchase as prices soared more than ever. But recently, Pitts noticed it after the Sugars lowered the price of the red Lincoln MKC she was looking at.

“That’s why it caught my attention,” she said. “The price has dropped a little.”

The red compact SUV, which travels 58,000 miles, costs about $ 27,500 for Pitts, a slight drop from $ 28,000.

With the return of buyers like Pitts, experts have suggested that there will be sufficient demand to prevent the price of used cars from falling sharply. One of the reasons is that the supply is still low. According to Cox Automotive, last month’s dealers had only enough vehicles to meet their 34-day demand. This is 11 days less than last year’s same month of 2019, which was considered normal in used car sales.

Few people think that a slight drop in used car prices heralds a slowdown or reversal of overall inflation in the economy as a whole. Many goods, parts and services are becoming more and more expensive, from semiconductors and petrol to clothing, restaurant meals and household furniture, except for the price of timber, which initially soared just after returning to Earth. .. Due to the shortage of workers in many industries, employers are raising wages and labor costs.

Still, the Federal Reserve under Chair Jerome Powell predicts that inflation will eventually ease after the supply shortage is resolved. Bond investors seem to agree. Benchmark 10-year Treasury yields, which generally reflect the outlook for inflation, have fallen in recent weeks as a sign that investors continue to be more concerned about the outlook for a slowdown than a surge in inflation.

The average wholesale used car prices paid by dealers rose slightly each year until the March 2020 epidemic flattened the economy and reduced the supply of both new and used cars. According to data held by Mannheim, a group of auction houses where dealers buy vehicles, average prices fell temporarily in April last year, but exceeded 60% until they peaked in May this year. It was.

A slight reduction represents a welcome remedy for buyers. The average retail price of used cars in June was just below the record high of $ 25,000. Due to the soaring prices, some used cars two years ago were, contrary to intuition, sold at a higher price than the new sticker price.

Low-income buyers are particularly hurt. Only cars over 100,000 miles were forced to buy a used car for commuting. Still, according to Edmunds.com, even the average price of these vehicles has risen 31% over the past year to $ 16,489. Buying a car has made any car out of reach for many.

Part of the price increase was facilitated by government stimulus measures that arrived in March. A qualified family of four can receive $ 5,600.. Retail prices for used cars have soared that in April, May and June, they accounted for about one-third of the overall rise in the US consumer price index. In June Second-hand prices rose 10.5%, a record high, It has helped boost inflation to 5.4% compared to the same month last year. This was the highest increase since 2008.

From late June to July, used car shoppers were watching closely. Many have decided to wait for the madness to end, and their pullback has lowered wholesale prices slightly. Dealers were afraid that they might have paid a lot for the vehicles on their premises. Some people have begun to cut prices.

“The enthusiasm is over and inventory is starting to grow a bit,” said Michelle Krebs, an analyst at Cox Automotive. “Usually, used car prices fall after tax refunds and stimulus checks.”

Alex Yurchenko, senior vice president of data for BlackBook, which monitors vehicle costs, expects prices to fall a little further, but will be well above 2019 levels for a few more years. Ultimately, he suggests that prices will fall further as supply catches up with demand.

Jonathan Smoke, Chief Economist at Cox Automotive, warns not to expect a return to pre-pandemic used car prices.

“It will require a significant reduction in demand and a simultaneous expansion of supply,” he said. Neither is likely to happen. “

When many states issued a stay-at-home order, the entire crazy price cycle began with a pandemic eruption. Prices plummeted and automakers closed their factories for eight weeks. The resulting supply decline occurs in the same way that many supportive consumers wanted a new or used car to commute to work or go on an expedition without contact with others. I did.

Although car factories were closed in April and May last year, computer chip makers have shifted production to meet the strong demand for laptops, game consoles and tablets. It created a shortage of car grade chips, This remains a serious problem that may not be resolved until next year.

New car inventories and high demand have resulted in soaring new car prices and many buyers entering the used market. Their demand has reduced supply and pushed up used car prices.

Some new car dealers have run out of best-selling pickup trucks and large SUVs. For some models, there are only enough vehicles in the dealer lot to meet the eight-day consumer demand. Manufacturers prefer to keep it on hand for 60 days to provide the right choice.

Ernie Garcia, CEO of used car startup Carvana, said that too many variables make it impossible to predict where used car prices will go from here. If chip shortages and other supply chain bottlenecks are eliminated and new car prices are eased, they could fall. But under certain circumstances, they too could shoot back.

“Until the automaker’s supply chain normalizes, it will be difficult to bring car prices back to normal,” Garcia said.

Everyone who predicted car prices over the past year said they were “wrong in a fairly short order.”

Used car prices fall slightly after hitting record highs

Source link Used car prices fall slightly after hitting record highs

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