It’s seemingly destined to go down in U.S. used-car history as “the frenzy” of 2021.
Pre-owned vehicle sales set eye-opening records last spring. They’ve since ebbed a bit to something close to normal, says Cox Automotive’s Chief Economist Jonathan Smoke.
“We have to adjust the frame of reference from the spring to a more normal situation, but there’s still a high demand and strong market,” he says during a review of Cox’s quarterly Manheim Used-Car Index report.
“If scripted, the frenzy most emulates a situation that (sellers) would like,” Smoke (pictured, below left) says of sales in spring, May in particular.
That situation included a high consumer demand for used cars amid a new-car inventory shortage. That led to used-car inventory shortages, too.
Mightily spurring the whirlwind selling: Many consumers received federal government stimulus checks, tax-return refunds and extra COVID-related unemployment benefits.
Vehicles usually are depreciating assets. During the frenzy, some of them appreciated in value. Now, they’re back to depreciating with age.
Wholesale price trends for top-selling vehicles at Manheim auctions showed a 1.3% decline in June compared with May, but prices were up 34.2% compared to June of 2020.
All those models saw big year-over-year gains. For instance, a 2018 Nissan Rogue CUV with all-wheel drive went for an average of $21,000 at auction June 1 compared with $16,750 at the same time a year ago. A 2018 Ford Explorer at auction went for $31,200 in early June compared with $25,700 year-ago.
“People will see better deals now than they did in the spring,” Smoke says of impending sales. “Normal pricing patterns depend on the absence of desperate sellers or desperate buyers. When you have equilibrium, you have neither of those. When used-car lots are filled, you have less of a frenzy.”
Although inventory levels remain tight, “we are entering a more normal level of (used-car pricing),” Smoke says. After all, “vehicles are depreciating assets.” Or they’re supposed to be. The economist describes the recent high used-car prices as “abnormal.”
Largely because of spring’s feverish buying patterns, he predicts sales of 2021 pre-owned vehicles will hit 39.3 million in the U.S. That’s a 26% increase on the Manheim Used-Vehicle Value Index.
“Used-car prices appreciated dramatically in six months,” says Kevin Chartier, vice president of Manheim Consulting. “They were getting close to bumping up to new-car prices. When the new-car inventory levels increase, we’ll see equilibrium in used-car prices.”
The stimulus checks, tax refunds and extra unemployment compensation presumably are done for the year. Although that gravy train has stopped – for now, anyway – Cox’s online automotive marketplace websites Autotrader and Kelley Blue Book “are seeing no slack in demand,” Smoke says.
He offers a possible reason for that: Rather than society becoming less dependent on personal vehicles (as some prognosticators had said), “society has become more dependent on vehicles.”
Steve Finlay is a retired WardsAuto senior editor. He can be reached at [email protected].