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Microchip shortage seen curtailing incentives for new-vehicle purchases.

Inventory Shortages Keep Used-Vehicle Prices High

Despite low inventory, microchip shortages and economic stress, the end of 2021 is expected to be on par with 2020 – which was a record year for used-vehicle prices.

As we move through the first quarter of 2021, used-vehicle prices are hovering 15% above where pricing was at the end of 2019.

While transaction volumes are admittedly much lower than they have been in the years leading up to 2020, used-vehicle pricing has more than held its own. This is good news for the entire industry because it suggests there is a healthy basis for a strong long-term recovery.

This is just the latest example of the importance of the used-vehicle segment in supporting the automotive industry’s recovery in the wake of a tumultuous pandemic year, according to the latest analysis from the Valuation Services team at J.D. Power.

While many market observers suggest this pricing rebound should be viewed as a short-term phenomenon, the trend has stubbornly continued.

J.D. Power expects pricing to remain at current levels for the foreseeable future, with a good possibility that demand pressures will cause prices in the used segment of the market to rise even higher by the end of the year.

As stable as the demand picture appears to be – especially as the economy recovers from the COVID-19 crisis – the real driver behind current market dynamics revolves around supply constraints.

Even though 2020 saw increased sales of used vehicles, value chain disruptions – and a breakdown in the national wholesale market – interrupted the normal stock replenishment process to greatly reduce dealer inventories.

The low-inventory scenario on the new-vehicle side of the market has been, and will continue to be, particularly tough, limiting the mid- to-long-term outlook for used-vehicle supply.

Industry-Voices-bug.jpgThere are several reasons for this, not least of which is the fact that the industry is facing a major microchip shortage. The high-tech offerings of the automotive industry have put the sector into fierce competition for critical components with consumer electronics and other segments of the economy that require chipset technologies.

As a result, consumers can expect to see a continued tightening in incentives for new-vehicle purchases.

Sales volume for both new and used vehicles is expected to continue to increase. As we transition toward the middle of the year, noting that the tax filing deadline has been postponed from April to May in the U.S., used sales activity and prices are expected to jump as refund checks reach consumers.

Adding fuel to the fire are the government COVID–19 stimulus checks issued in the first quarter of 2021 as well as a significant jump in personal savings for the segment of the population that has been lucky enough to avoid suffering work loss as a result of the pandemic.

David Paris JDPower 2021.jpgThese folks saw their savings increase by record amounts because they were no longer spending on dining out and vacations, nor absorbing costs associated with commuting to work.

In short, a foundation for a healthy recovery seems to be in place.

David Paris (pictured above, left) is an executive analyst at J.D. Power, specializing in new- and used-vehicle market data.

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