Business

Used automotive costs will stay excessive till automakers repair manufacturing issues

If you’re waiting for used car prices to drop and reading the latest clues as a sign that prices have already started falling, one of the largest used car salespeople in the U.S. says you shouldn’t be too excited.

According to Carvana’s CEO, the rise in used car prices is unlikely to slow until manufacturers can start producing cars at pre-pandemic prices.

“[Used car sales] The volume is pretty much in line with 2019, it hasn’t changed that much – the main difference is just that so much fewer new cars are being made and this is driving up prices box “on Friday.” I think up the supply chains at the [original equipment manufacturers] Find out that it is likely to have a lasting effect. “

Automakers have struggled to maintain production in the face of the shortage of semiconductor chips.

Ford, which had to cut its North American vehicle production in July and August due to bottlenecks, said in its earnings report for the second quarter that shipments improved but production of about 700,000 vehicles was lost during the quarter.

General Motors said the chip shortage will reduce its revenue by $ 1.5 billion to $ 2 billion, and has shut down some of its North American assembly plants due to the shortage.

Nissan said in May that it will produce half a million fewer vehicles this year, while BMW recently warned that the bottlenecks will creep up by 2021.

The chip shortage will cost automakers an estimated $ 110 billion in lost sales this year, according to a May report by consultancy AlixPartners.

Used car companies see sales increase

Customers inspect a Fiat Chrysler Automobiles NC Dodge Grand Caravan minivan at a Carvana Co. location in Westminster, California, United States on Thursday, May 28, 2020.

Patrick T. Fallon | Bloomberg | Getty Images

The drop in production was a boon for used car dealers like Carvana. The company reported its first profitable quarter on Friday, posting net income of 45 million a year ago in the second quarter of 2021, and for the first time in its eight-year history, it sold over 100,000 cars in a quarter. Carvana stock is up 44% this year through Friday.

These gains have been accompanied by a large increase in used car prices. The average transaction price for a used car was $ 25,410 in the second quarter of 2021, down from $ 22,977 in the first quarter and 21% year over year, according to data from online automotive resource Edmunds. That number marks the highest average price over a quarter for a used car that Edmunds has ever tracked.

Debate over when used car prices level off

These high prices have helped boost the used car industry.

EchoPark Automotive, a division of Sonic Automotive that sells used vehicles, posted $ 595.6 million in retail sales, up 68.9% year over year.

CarMax, the largest used car dealer in the US, recorded in the first fiscal quarter of 2022, which ended on 31. The company said it sold 452,188 units through its retail and wholesale channels in the quarter, up 128% year over year.

About when prices could level off, Garcia said, “In the next six months, or even 12 months, I think it’s hard to say.”

“What we are finding is that OEMs supply chains are perhaps a little more fragile than we all would like, and that thousands of parts are being made around the world and waves of covid popping up in different parts of the world I think that makes it really difficult predict when that will return to normal, “he said.

By comparison, Sonic Automotive president Jeff Dyke said recently on CNBC’s Worldwide Exchange that he expects chip shortages to decrease in the coming months, which would lower used car prices.

“The new car stocks will get better and better in the next few months towards the end of the year,” said Dyke. “This will reduce the number of inventory problems on the used side.”

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