The sharp contraction in demand for used cars has pushed down wholesale prices, which means it will soon become a buyer’s market for used cars.
- The Mannheim used car value index says that the wholesale price of used cars has fallen sharply, and some expect retail prices to follow.
- The next few months seem to be the best time to save used cars and one of the most unfavorable.
- Demand has shrunk severely, partly due to the coronavirus pandemic, which has caused prices to fall. If this contraction continues, prices will fall.
The overall economic shutdown caused by the COVID-19 pandemic has caused repercussions throughout the automotive industry. Crude oil prices briefly fell earlier this week, new car sales have risen, and now the used car market is experiencing its own demand shock.
The Mannheim used car value index is an important benchmark for second-hand car prices. The data shows that the price of second-hand wholesale cars fell by 11.8% in the first 15 days of April compared with March. According to Mannheim, to illustrate how extreme this change is, in November 2008, the last month-on-month price decline was 5.5%.
Currently, retail prices or prices seen by everyday consumers have not fallen with wholesale prices. Manheim ’s analysis shows that retail prices have fallen by less than 1%, which is unusual because the wholesale and retail prices of used cars are usually correlated. The complete suspension of used car retailing has led to uncertainty in the value of vehicles. “Compared to last month, all of us are selling new cars stronger than last year, which is the opposite of how we started this year. At this point, I do n’t think any of us really know … AutoNation dealers Speaking with former executive Mike Maroone in the “Car News” podcast last week.
However, industry analysts see retail prices fall in the coming months, which means buyers in the used car market can find big discounts. “If you need a car now, just try it now,” said Ivan Drury, senior insight manager at Edmunds. “Throw away the sensors, because if you get a dealer who is aware that it will become harder and harder to sell in a month [and that] they will still have to lower prices, you may be able to do the sooner than later.”
When, where and for how long buyers will be able to find discounts on used vehicles, is the subject of debate. Drury added that in the coming months people will be able to get offers for used vehicles. Edmunds predicts that the value of used cars will go today as it did in 2008 during the recession, the year in which three-year cars lost almost 10 percent of their value, twice as much as the year before.
Dale Pollak, Cox Automotive’s vice president and founder of vAuto, wrote in a letter to dealers: “The huge supply of wholesale inventory suggests that deliveries will be even greater in the coming months.” J.D Power forecasts that wholesale prices for used vehicles will fall by 8 to 11 percent and fall in June.
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This translates into great news for buyers of used cars, and at the same time more than a few reasons why you should stay in a used car for now if you have one you want to sell. “For someone who has a two-, three-, four-year vehicle that was also a heavily rented vehicle,” said Drury, “will see a greater impact on resale value.” This is due to the fact that in the coming months many other previously rented vehicles will appear on the market.
The fall in prices may suffer from the sale of used cars, such as Ford Credit and General Motors Financial, which auction their rented inventory, and car rental companies, such as Hertz and Avis, which auction their car rentals. Each percentage point drop in the value of used vehicles hurts their lower limits by millions of dollars.
Turbulence is therefore heading for used car markets. Drury noted in the note: “Recessions are not friendly to the values used.” This is bad news for sellers, but if buyers do it the right way, they can save on future purchases.