Used car prices remain high until carmakers solve production problems.
If you are expecting the fall in used car prices, and reading recent indications as a sign that the fall in prices has already begun, one of the largest sellers of used cars in the United States says it should not be excited. .
According to the CEO of Carvana, the increase in the prices of used cars will not slow down until producers can start producing cars at pre-pandemic rates.
“[Used car sales] the volume is fairly constant with 2019, it hasn’t changed that much – what’s materially different is just that there are so many fewer new cars being manufactured and that is pushing up prices. “Ernie Garcia, general manager of Carvana, said in CNBC Box’s ‘Squawk’ on Friday.” I thought until the supply chains to the [original equipment manufacturers] you understand that there is likely to be a lasting impact. ”
Car manufacturers have struggled to maintain production with the shortage of semiconductor chips.
Ford, which had to cut its production of North American vehicles in July and August due to shortages, said its second quarter said supplies improved, but that it lost production of about 700,000 vehicles during the quarter.
General Motors said the shortage of chips will cut its profits from $ 1.5 billion to $ 2 billion and that it has boosted some of its North American assembly plants due to shortages.
Nissan said in May that it plans to make half a million fewer vehicles this year, while BMW recently warned that it expects the shortage to infiltrate in 2021.
In total, the chip shortage is estimated to cost carmakers $ 110 billion in lost revenue this year, according to a May report from consulting firm AlixPartners.
Used car companies are seeing soaring revenues
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 rebound in production has been a benefit for used car dealers like Carvana. The company reported its first quarterly profit on Friday, bringing in $ 45 million in net income during Q2 2021. Caravan’s total revenues also grew 198% year-over-year to $ 3.3 billion as it provided more than 107,000 cars, a 96% increase compared to a year ago and for the first time in its eight-year history has never sold more than 100,000 cars in a quarter. Caravan shares are up 44% this year as of Friday.
Those gains came alongside a big jump in used car prices. 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-over-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.
Debates over when used car prices will rise
Those high prices have helped fuel the used car industry.
EchoPark Automotive, a division of Sonic Automotive, which sells used vehicles, also set a record quarterly earnings with $ 595.6 million in sales, up 88.9% year-over-year. Retail sales volume was up 68.9% year-over-year.
CarMax, the largest used car retailer in the United States, had a 138.4% year-over-year increase in revenue over its first fiscal 2022 quarter ended May 31, to $ 7.7 billion. The company said it sold 452,188 units through its sales and sales channels during the quarter, up 128% from the previous year.
As for when prices may snow, Garcia said “over the next six months or even 12 months I think it’s hard to say.”
“What we discover is that OEMs have supply chains that are perhaps a little more fragile than we all want and they have thousands of parts manufactured all over the world and there are Covid waves popping up in different parts of the world then I think it makes it really hard to predict when it will normalize again, ”he said.
In comparison, Sonic Automotive President Jeff Dyke recently told CNBC’s “Worldwide Exchange” that he expects chip shortages to be addressed in the coming months, which will begin to drive down the price. of used cars.
“New car inventories are set to improve progressively in the next few months as we get to the end of the year,” Dyke said. “When that happens, it will alleviate the amount of inventory problems that happen from the property side.”