With automakers having a difficult time keeping production schedules thanks to COVID restrictions nuking demand and upending supply chains, 2021 arrived with plenty of problems. Desperate to replenish fleets they had sold off while everyone was locked indoors, rental agencies went on a used car buying spree. But it wasn’t just rental fleets that needed to be restocked, dealerships are also finding themselves with fewer models on the lot than they’re accustomed to — which is a bad position to be in when surveys have revealed consumers are now willing to pay stupidly high prices for automobiles.
They’re reportedly going to great lengths to acquire used cars as the great buyup of 2021 continues.
While the average transaction for a new vehicle now exceeds $40,000 (depending on the source), the going rate for a used one is typically several grand more than it would have been just a few months earlier. Wholesale prices for used cars sold at auction are up 39 percent since the start of 2021 and retail values are up about 20 percent over the same period. It’s quite the steep curve but mimics the general trajectory we’ve seen of consumer goods over the last six months.
According to Automotive News, the situation has encouraged dealerships to get increasingly aggressive in regard to procuring additional vehicles. Some are now scouring private seller havens like Craigslist and Facebook’s marketplace for loose automobiles, with the biggest names (e.g. Carvana) flipping them on the very same channels.
The outlet spoke with Premier Automotive Group’s principal dealer, Troy Duhon, who explained he was issuing sales staff $200 to $400 for acquiring secondhand cars or trucks from private sellers.
“I had one particular salesperson last month buy 10 off the street,” Duhon explained. “And I made over $40,000 on those 10 vehicles.”
His franchise of 24 stores has managed to snag roughly 20 models per location this year, with Duhon claiming it was the smartest thing he’s done in two decades.
With wholesale prices climbing to record highs week after week, dealers have become especially innovative in how they land quality used inventory to meet demand and preserve margins — although most have been extraordinarily profitable in this unprecedented market.
The need for inventory has become so acute that it has forced some dealers, such as DeNooyer Automotive Family in Michigan, to make difficult decisions.
Managing Partner Todd DeNooyer said the group has had to prioritize local customers, in many cases requiring out-of-market customers to have a trade-in vehicle in order to buy a car or truck.
“It’s kind of a tough decision to make as a dealer because you always want every sale you can, but you have to take a step back and realize that I want to sell to somebody that’s going to continue to do business with me over time,” DeNooyer said.
Other tactics have included asking existing customers to end their leases early so that vehicles can be placed on the lot for those juicy margins and entertaining a willingness to sell cars carrying more miles than would have previously been profitable. Many dealerships are finding themselves with fewer cars than seems prudent. To remedy this, some are accepting automobiles that aren’t in the kind of shape you might normally think would preclude them from being found anywhere but the sketchiest of stores.
It’s a solution we’ve also seen utilized by rental agencies, especially those that took the worst financial beatings during 2020.
The Manheim Used Vehicle Value Index was up 48 percent (year over year) in May. It was a record and helped by a 3 percent increase in secondhand automotive sales during the period. Meanwhile, retail supplies have remained low (averaging 38 days) while demand continues to climb. Around a quarter of these cars don’t even have time to go through the service department due to public hunger.
J.D. Power has claimed that the slowed growth of wholesale pricing over the last few weeks ending on June 6th could be indicative of some kind of stabilization. But we’ve seen little hard evidence that prices are going to decline anytime soon until inflation is wrangled and new vehicle production normalizes — which requires supply chains (e.g. semiconductor providers) to get their act together. David Paris, J.D. Power’s senior manager of market insights, seems to agree.
“I don’t think personally we’re going to see used prices fall off the face of the planet,” he said. “When they do start to come down, it’s going to be a gradual move downward as new-vehicle production gradually comes back on.”
The only upside is that private sellers can make a small fortune selling their vehicles to a desperate dealership. But that might be a risky play if they don’t have another form of transportation waiting in the wings. Stores are making big money on these cars and the markups are exceptionally steep. It’s kind of like how massive financial institutions are buying up homes for a premium and then turning them around on desperate consumers by jacking up the price or transitioning them into high-end rental properties.
We’re just wondering how long this all lasts. These massive jumps in pricing hardly seem sustainable with the cost of living going up across North America and showrooms cannot continue making money like this forever. Too many people have told us that they’re just going to try and wait out the market and see how frugal they can be in the interim. For those of you who don’t recall, our last giant recession took place shortly after housing prices spiked and fuel costs skyrocketed.
[Image: Gretchen Gunda Enger/Shutterstock]
Yep, it’s wild out there. Traded a one year old car with 30,000 miles for more than I bought it for. And I still got a decent discount off MSRP. I thought this was just one of those stories you read about that doesn’t really pan out when you get to the dealership. I drove off the dealer lot feeling like I’d stolen the new car (I didn’t). Needless to say, the current situation is great for those tired of their current car or with buyer’s remorse.
I traded a 2017 Jeep that I purchased from Carvana in 2018 in March for a newer model. It had been a reliable truck, Dealer offered me what I had originally paid for it and gave me sale price on the the 2021. They even wrote off the 60K maintenance charge that the car was in the shop for.
Even got the free 3 year maintenance from Jeep.
Other than it being a cash purchase, honestly can’t figure out why they did that, since both used and new vehicles are now in short supply.
My old Jeep was out front for sale the following day more and sold a few days later.
that used car probably got financed via a dealer-brokered loan which are More profitable for the dealer.
Then throw in the fact that used car buyers tend to shop by monthly payment , not topline price. All in all, making little money off of you was balanced out by the likely big margin from the flip
I would guess so, clean Carfax and maintenance record.
4 year old vehicle, 60 month note. I wouldn’t do it but others might.
“Wholesale prices for used cars sold at auction are up 39 percent since the start of 2021 and retail values are up about 20 percent over the same period.”
Just so everyone understands, 39% *of all wholesale* up is absolutely insane. I’ve never seen auction data prior to the 90s but I’d wager this didn’t even happen in 70s stagflation (car wise its apples to oranges I know but there is no even close precedent).
““When they do start to come down, it’s going to be a gradual move downward as new-vehicle production gradually comes back on.””
I’m not convinced that is going to happen and if it does, only a few points. Too many people will be sitting on too much high inventory, only way that changes is if enough dealers become desperate for cash flow and dump some inventory. This chip thing is going to go on for a lot longer than the summer so the new car inventory hypothesis is going to fall flat IMO.
Wholesale is bonkers. Cars rolling thru the auction for over MSRP is just crazy. But it’s happening. Last one I heard is that the wreck and tow cars are selling for big bucks too, $750 min for a wreck.
Wow. Depending on the wreck and condition of the wreck that may have already been common, but if its every single one that’s already not crushed into a cube… damn.
I was told the new deal is if it doesn’t make 750 on bid a local used parts place buys it for 700 (per a contract) so yep crushed cubes for 700 bucks.
The only way numbers like 48% (or 39%) make sense to me: • The mix of vehicles has changed (nicer vehicles, nicer trims). [Theory: The Haves are (still) buying and selling used cars while the Have Nots are staying with their current used car] [Additional theory: The relatively cheap models the OEMs killed are working their way out of the system] [Another additional theory: Used sales of the newer Platinum Limited Sky High trims are replacing the older lower trims] • New car pricing going up (including lower incentives) making lightly-used vehicles a more viable alternative. [Accelerating recent-vintage transactions and bringing down the age of the average used vehicle]
• Lower miles could play into it, but Manheim does make a mileage adjustment: https://publish.manheim.com/content/dam/consulting/Used-Vehicle-Summary-Methodology.pdf
These are all very good points.
I might add, the economic conditions 1/1/2020 to present have hit middle American very hard and credit has likely decreased in addition to significant wait for it… transitory… inflation. How many who could have qualified for a new car are now relegated into subprime etc. and now can only play in the CPO/used space? We’ve already been reeling from the -50% expected supply 2008-2012 period prior to 2020, now wholesale has had gasoline and a match dumped onto it. Oh and add the EV threats of jackbooted thugs, er technocrats, sparking a panic in the minds of some.
Or lurid tales of EV threats of jackbooted thugs, told by vested interests whose revenue streams are enhanced by agitating the easily frightened into large impulse purchases.
Ah very true, though actual Uniparty™ members are usually the ones who allude to such a thing. Now maybe behind the scenes its all a big joke to them and helps their portfolios? Certainly wouldn’t be too surprising.
Well all cars are up quite a bit but a big driver is high end trucks and SUV’s that have high demand and are hit hard by the chip thing. That means things like corporate lease vehicles that come off at one year are wholesaling for close to MSRP. Like you said it’s the top 20% buying right now the rest are just trying to make do unless they have to. The work parking lot and my blue color neighborhood is seeing very little change over in cars over the last year.
Three years ago I bought a 26k mile 2014 Mustang Premium V6 / manual – with the Ruby Metallic paint – for $16k and change.
Last month I decided to part with it for a trade in on a newer car for my wife. We got a $14k trade-in (38k miles on the clock). The dealer has it on their website for $19.1k !!
If anyone cares, we bought a used 2016 Audi A3 Quattro with the 2.0T. It’s a nice little car, exceeding my expectations. I’ll cross my fingers that it remains reliable for my wife’s daily grind. The A3 has a quieter ride than the Mustang and that DCT transmission shifts so fast; I don’t miss the manual too much.
If Toyota had not switched off of multiport FI -or ruined the Corolla’s interior layout- I’d consider trading mine. But, nada. Ipad-in-dash is an instant turn off, and DI over the long haul F that. Advance has three high pressure fuel pumps for Toyotas ranging from $1,176 to $1,413. ***For a fuel pump***
https://shop.advanceautoparts.com/find/toyota-direct-injection-high-pressure-fuel-pump.c7824
Aftermarket: $97: https://www.partsgeek.com/gbproducts/AC/29866-07556422.html
Advance Auto’s prices makes car dealers look like saints.
There is an AA an easy mile from my house, but I only go there now in desperation. Even for a dead battery replacement, I’ll take the extra 15 minutes and save 25% by shopping online from them with a coupon.
I don’t know their business model, but they must survive by supplying the local garages with quick-ship replacement parts that get rolled into $400 front brake jobs. The consumer store front can’t be their bread and butter, but I feel like I’m being held up every time I go in there.
RockAuto and PartsGeek have certainly taken a big bite of their business, not to mention Walmart for oil and filters. The Walmart Suretech synthetic oil and filter costs me $21, but at Advance it’s around $40. So I drive a few extra miles to Walmart.
Recently recycled a year’s worth of motor oil at my local Advance Auto, and was going to purchase some wiper blades to ‘thank’ them – then realized that the most basic blades were close to $20 each – no sale. (Bought the very nicest wiper blades rockauto.com had for close to $10 per side plus $7 shipping.)
[I asked my college-age daughter what she wanted for her birthday and she said ‘a windshield’ – turns out the cruddy wiper blades I got last time were smudging the glass. Cleaned the glass (Sprayway glass cleaner, then clay bar, then 0000 steel wool which I could’ve skipped) and installed primo blades, problem solved. The results are “…amazing!!” according to her. (The new windshield was going to be double the price of the one on either of my vehicles.)]
My local PepBoys just closed their parts department. The service center appears to still be open. I am huge fan of RockAuto but sometimes you need to shop local. For example I needed an oil filter wrench, so I get one off Amazon but it didn’t fit despite the listed measurement. Went into PepBoys, grabbed a filter off the shelf and found the wrench that fit it. As cars have gotten more complex the DIY crowd is going away I guess.
I’ve also noticed Lowes & Home Depot has car cleaning products, oil and filters, plus some car specific fasteners like those little plastic clips for various interior parts. I was grabbing something the other day and a guy stocking the shelves claims this stuff is selling very well.
You make an excellent point and I thought the same the last time I dealt with AutoZone. Using the commercial account -that I nearly needed to God to vouch for me to use now- the battery I needed I think was still nearly $200 for the el cheapo store brand. I had an Interstate *installed* six years ago for $140 and change, this one I even did myself.
“I don’t know their business model, but they must survive by supplying the local garages with quick-ship replacement parts that get rolled into $400 front brake jobs.”
I think that’s the regular cashflow, everything else from people like myself who have gone there forever for a thing here and there now being gouged margin wise.
“RockAuto and PartsGeek have certainly taken a big bite of their business”
I love RockAuto but their shipping is ridiculously expensive and pretty much negates your savings. Perhaps it levels out at one point so if you’re spending four figures you still come out ahead vs Advance et al, but the last time I priced a $200 order for misc. things I was quoted either $60 or $80 shipping and just X’d out of it. How about up everything 10% and offer me $9.95-$19.95 slowpoke USPS/UPS etc and if I need it badly enough I’ll pay bajonga for air/next day.
I didn’t realize you could claybar glass, innovative solution.
My shipping on rockauto.com is almost always 7 or 8 bucks for the entire order, whether it’s for $60 of parts or $200 of parts. (So I’m usually more upset with myself for not batching more stuff into my order rather than upset with them.)
[They do charge a lot more for shipping heavy/oversize items.]
I ordered a catalytic converter for my daughter’s 2010 Liberty from amazon.com which included free shipping – it is a huge welded assembly which includes two catalytic converters and the downpipes – more-fragile parts were wrapped in cardboard and the rest was bare. Sent it back under warranty and got another one with no problems. (Got some interesting looks while standing in line at UPS to send it back.)
Nothing I was purchasing was heavy and don’t believe oversize. I do know it was telling me it was shipping these things from four different locations and they would have different arrival times. My view is simply this: I don’t care how well or poorly your supply infrastructure is implemented, I want flat rate shipping regardless if you take a loss on it because your inventory isn’t efficiently organized.
I’ve been buying parts from RockAuto and even though freight into Canada is pricy it still ihas been cheaper than most of the local parts outlets even with my son’s “dealership” discount. I ordered a grill and headlight assembly for my younger son’s Colorado. The freight was more than the cost of the parts but it still was well under the price I was quoted by the auto wreckers.
I order all of my motorcycle parts from 3 Canadian mail order suppliers. They all have free shipping over $49 dollars via Canada Post. I’ve purchased tires at 1/2 the price of the local Suzuki stealership.
You have to be careful with Rock auto shipping because they ship from multiple warehouses and they charge separate shipping for each. If your careful and can get everything from one warehouse it can be amazingly cheap. The retail parts stores tend to be higher on lots of things (wipers and oil seem to have really crazy markup) but close on other (brake parts seem to be competitive). Their real advantage is to get something when you need it. My local Napa which used to be crazy expensive has become very competitive recently I think competition forced the change.
Thank you for explaining. I challenge them to suck less so I may get all the product I need without being penalized for their inefficient supply chain/storage.
@ SCE to AUX: RockAuto may have the part you need for any car, but their shipping prices are out of this world!!
Even my ancient Dakota is up 33% YOY I just need this to hold for another 6 months.
Yep sold my old 2000 Durango for 900 bucks last year. Looks like I could get more like 2K now. Everyone is a bit desperate. Anything running and driving under 2K seems to be instantly sold near me.
Currently working on selling off my aunts estate items. She had a 2017 Honda CRV in mint condition, loaded, 22K miles. Have asked 3 local dealers if they are interested. 1 responded (a Cadillac/Chevy store). The Ford and Honda ones still waiting to hear. Also priced on Vroom, Carvana and Carmax. Carmax was the winner at $25,500. If a family friend who says they are interested decides against it, sounds like it will go to Carmax. The car is the last thing to tie up from her estate – and I quickly did a price valuation about 3 months or so ago – and it has gone up about 3K from then.
I’m sorry for your loss.
“Other tactics have included asking existing customers to end their leases early”
It was just a single year ago that we heard all the stories of dealers and manufacturers flat-out telling their customers, “no, we won’t take your lease return, go away”.
I would love to remind those dealers of that situation. They could have had all the cars they wanted…
But more importantly, that was a single year ago and now it’s flip flopped 180 degrees. So tell me, what will things be like a single year from now?
Is Blackrock buying up used cars?
I’m sure a Blackrock like company is, or perhaps just the usual suspects like Carmax or perhaps Carvana.
It is the brave new world we live in today (in USA). But for me (and Slavuta) it is deja vu all over again. We called this phenomena “deficit”. In Soviet Union everything was deficit: toilet paper, napkins, toothpaste, clothes and shoes, frames and lenses, butter, beef, tea, coffee, all kind of food, cars of course too. So prepare for more of the “deficit” in near future. We know how well it ended. In the end freedom of speech won – nobody was afraid of communists and KGB, barely surviving there was nothing to loose anymore.
I hadn’t posted on TTAC for a very long time. but, here I am.
I bought a new RAV4 for my wife in April and i am trying to seal the deal for an Avalon right now. Both deals are at MSRP. In April they also screwed us for about $2,000 on the trade in, a 2007 RAV4 with less than 70,000 miles. I won’t have a trade in because my old car (a 2014 Accord V6) got totaled in a 3 mph accident.
I had never paid MSRP for a car in the 35 years I have been buying new cars. (when i was younger I bought real used.) I can afford it, but I am not at all happy about it.
Personally, I wouldn’t be going back to the dealer I knew screwed me on trade. If I did, it would be well you remember that RAV you screwed me on? Its coming off my Avalon or see ya. I realize we’re in Clown World but I doubt Avalons anywhere are flying off the shelves, let alone at MSRP.
Soon we will be like Cuba driving 60 plus year old vehicles and what few new vehicles we will be able to buy we will have to get on a waiting list and pay 25% above MSRP. The new vehicles will not be only more expensive but they will have so many electronical nannies requiring expensive repairs. It use to be that I wanted a new vehicle because of better reliability and newer safety features but vehicles have become more complex and much more expensive with less quality. Also many of the newer vehicles look alike–like blobs in black, white, silver, and various shades of gray with black interiors. There are a few new interesting vehicles on the market but most have astronomical prices. I think I will keep what I have for a long long time and possibly spend money on having my truck’s frame sandblasted and rust proofed and fix the few rust spots on it even if I spend thousands especially since it is low mileage and mechanically sound.
Consider WoolWax for corrosion prevention. I discovered it a few year ago and started laying it on the bottom of my 99 GMC. Like FluidFilm but is smells good (it’s basically lanolin derived from sheeps wool)
I think the last a sentence in your first paragraph sums it up “…consumers are now willing to pay stupidly high prices for automobiles.”
The have been way before the pandemic and will continue to be long after. Unless there’s a legitimate critical need no one should be even thinking of buying a car now!
I’m gonna say something that may offend a few of you but it needs to be said… People are idiots!
Or as Scotty Kilmer says “People like crows are attracted to shiny things.”
Last time I ordered heavy brake parts from rock auto I saved over 50% of my shipping fees by breaking up the order. As one order I was paying about $100 in shipping, getting 3 or 4 orders cost less than $50 shipping total.
Could you please elaborate on how you did this?
If only I didn’t have two road trips planned this summer it would make a lot of sense to sell my Highlander Hybrid now and buy another big family car later when the market cools down. I’m not going to have this Highlander forever.
It’s like 44’s cash for clunkers program all over again where a crap ton of good used vehicles were destroyed and taken off the market to get the public to purchase a new more efficient one. That sent used car prices soaring and inventories were decimated. It was so hard to find used cars that weren’t grossly overpriced that two of my used car dealer friends had to shutter their dealerships. And for buyers looking for a new vehicle most dealer inventories were very low by that point. It’s deja vu all over again but even worse
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