According to a leader of one of the largest car dealers in the United States, the used car market is showing signs of slowing down.
“New car inventories are set to improve progressively in the coming months as we reach the end of the year,” Jeff Dyke, president of Sonic Automotive, said on CNBC’s “Worldwide Exchange” on Friday. “When that happens, it will alleviate the amount of inventory problems that happen from the property side.”
The average transaction price for a used car was $ 25,410 in the second quarter of 2021, up from $ 22,977 in the first quarter and up 21% year-on-year. according to the data from the Edmunds online automotive resource. This figure marks the highest average price for a quarter for a used car that Edmunds has ever tracked.
However, Dyke says there are signs that the market is leveling off, with prices dropping by as much as $ 2,000 for a used car in the course of July as the supply of new cars begins to increase.
“Right now, we have about a total of eight to nine days of new cars on the ground. If you take our BMW brand that we have 15 stores with, when we have October and November we will have a 25 to 30 day supply that will start to regenerate property inventory for all resellers, and that will help raise prices, ”Dyke said. “We’ve never seen it before where you have an investment where wholesale prices are really higher than retail prices, but it’s all in the end.”
The increased value of the exchange opportunity will likely encourage new car buyers to offer their current vehicle to dealers and dealers. The average exchange value of a used vehicle in June was $ 21,224, up 75.6% year-on-year, according to Edmunds.
In comparison, the average cost of a new car in the second quarter was $ 40,827, up from $ 40,070 in the first quarter and a 5% increase over the year, according to Edmunds.
Lack of semiconductors impacting the automotive industry
A used car dealership is seen in Annapolis, Maryland on May 27, 2021, as many car dealers across the country run out of new vehicles as a shortage of computer chips has caused production at several manufacturers. vehicles almost stopped.
Jim Watson | AFP | Getty Images
The new vehicle inventory has been hampered due to the continuing shortage of semiconductor chips, a problem that remains.
Last week, General Motors has halted most of its American and Mexican production of full-size trucks such as the Chevrolet Silverado and the GMC Sierra. Production is expected to resume this week, the company said.
Ford also cut its production of North American vehicles from July to early August due to a lack of chips, which has an impact on vehicles such as Ford F-150, Bronco Sport and Explorer. The company said in its earnings last week that supplies of critical parts improved, however it lost production of about 700,000 vehicles during the second quarter. In April, Ford predicted a negative effect of about $ 2.5 billion from the lack of semiconductors, which it refused to provide an update to last week when it reported.
While Dyke said he expects the lack of chips to “alleviate here in the coming months,” the tight supply of cars has been beneficial for companies like Sonic Automotive that sell used cars.
Sonic Automotive earned $ 3.4 billion in revenue during its second quarter ending June 30, up 58.7% year-on-year and a new quarterly record for the company. Specifically, revenues for used vehicles have grown 56.6% over the year.
EchoPark Automotive, a division of Sonic Automotive that sells used vehicles, also set a quarterly earnings record with $ 595.6 million in sales, up 88.9% year-over-year. Retail sales volume was up 68.9% year-over-year.
Sonic Automotive has announced that it is undertaking a strategic review of EchoPark, citing the division’s success and confidence in a track for continued expansion. One option could be turning the division into a new public company, although Sonic Automotive has said it is considering a full range of alternatives.
Many other used car chains have become public in recent years, including Carvana in 2017 and Vroom in 2020.
CarMax, the largest used car retailer in the United States, saw its revenue grow 138.4% year-over-year in its first fiscal 2022 quarter ending May 31, to $ 7.7 billion. The company sold 452,188 units through its sales and wholesale channels during the quarter, up 128% from the previous year.