The lack of new cars in production because of the worldwide computer chip shortage has had a huge effect on the price of used cars.
According to Edmunds data, the average value for all used vehicles traded in during the month of March hit an all-time high, climbing to $17,080, compared to $14,160 a year ago.
Ivan Drury, senior manager of Edmunds’ Insight, noted that the company’s analysts found demand is soaring for used vehicles as chip shortages continue to severely constrain the supply of new vehicles in the market.
New vehicle inventory on sale at dealerships nationwide is down by 36% in March 2021 compared to a year ago. Three-year-old vehicles are retaining the highest value in the segment, the group noted.
Heavy-duty trucks keeping most value
Heavy-duty trucks are keeping their value the best, Drury said. According to the Edmunds list of top 20 2018 vehicles, it’s the Ford F-250 Super Duty that has the best trade-in value. The average price is $48,892, which is about 80% of its new-vehicle price in 2018.
It’s followed by the GMC Sierra 2500 HD, which at $51,661 is also keeping about 80% of value. The Ford F-350 Super Duty is also keeping about 80% of its 2018 value, with an average price of $53,880.
The Toyota Tacoma is keeping about 79% of 2018 value with an average price of $28,523. Rounding out the top five is the Ram 3500, with an average price of $49,650. That’s about 79% of 2018 value.
These figures shouldn’t surprise people that much, Drury said. Before COVID hit, pickup trucks were very strong, if not the strongest sellers, for the big OEMs.
“But these pickups tend to be the light duty variety,” Drury said. “For people who need a heavy duty, nothing else will do. And those buyers are relatively small in number compared to regular light duty truck buyers.”
Specific trucks for specific buyers
And heavy-duty consumers get these kinds of truck for very specific reasons, Drury said. They need the towing capacity or the bed capacity. And because OEMs sell trucks these days by offering a large number of option packages, heavy-duty trucks tend to be very individual.
So when someone needs a truck that can tow X amount of weight and has Y amount of carrying capacity, plus comes with an amazing sound system, there isn’t a lot to choose from on the used side of things.
This makes that truck with those features all that much more expensive, Drury said.
“The shortage of computer chips is really slowing things down,” Drury said. “Even if they can get the chip factories up and running soon, it’s not like flipping a switch. Those chips will have to be made, shipped and then installed in vehicles. I’ve seen pictures of huge parking lots filled with pickup trucks that are complete except for the missing chips.”
Only after those trucks get their chips will they then be able to be sold. And that will take time once the factories are going again.
Sedans present best used prices for consumers
By category, heavy-duty full-sized trucks are, on average, keeping about 77% of 2018 prices. This is followed by midsized trucks at 75%, light-duty full-sized trucks at 65%, luxury sports cars at 65% and sports cars at 64 percent.
People looking for bargains should consider sedans. They did the worst, Drury said. A midsize car is keeping only 58% of its 2018 value, and luxury models fare even worse retaining just 52% of 2018 value. That’s worse than compact cars at 57% and minivans at 56%.
This is good news and bad news for car dealers, Drury said. For dealers with inventory, that means they can get top dollar for those vehicles.
Market presents opportunities and dangers to dealers
But for dealers who need inventory, they will have to pay top dollar to fill their needs.
“These dealers will be competing with other dealers in the same spot,” Drury said. “The traditional supply chains are empty. Rental fleets are facing the same new vehicle shortage as everyone else. So they’re holding onto their cars longer instead of wholesaling them through the usual channels. Car dealers aren’t off-loading trade-ins to other dealers at the same rate as pre-COVID times.”
Americans really WANT to travel this summer
All this is happening at a time when Americans really haven’t been able to get out of the house to travel, or do much of anything basically.
“Now that more and more people have been vaccinated, the demand for vehicles for summer travel is going to go up,” Drury said. “The expression ‘pent-up demand’ doesn’t do justice to how the public feels. I would say people are bursting at the seams to get out of their homes to travel. And if they want to buy vehicles to do that, they will have to pay.”
But consumers who have managed to keep working during the COVID crisis will have the money, Drury said. For the past year, they’ve had nothing to spend their money on. They can’t travel, they can’t eat out, they can’t even go to the movies. Everyone has been living in sweatpants, so they haven’t been spending money on clothes either.”
“For dealers, this is a crazy time,” Drury said. “They are excited but nervous. There will be huge demand for used vehicles because there aren’t enough new cars, so people who don’t normally shop used are doing so. But it’s about inventory and purchasing that inventory at a good price. That won’t be easy.”