Soaring used car prices could finally end – .

Soaring used car prices could finally end – .

The scorching used car market is showing signs of slowing down, according to an executive at one of the leading auto retailers in the United States.
“Inventories of new cars will gradually improve over the next few months as we approach the end of the year,” Jeff Dyke, president of Sonic Automotive, said on CNBC’s “Worldwide Exchange” on Friday. “As that happens, it will reduce the number of inventory issues that occur on the used vehicle 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 21% year-on-year, according to data from online automotive resource Edmunds. That figure marks the highest average price over a quarter for a used car Edmunds has ever followed.

However, Dyke says there are signs the market is stabilizing, with prices dropping as low as $ 2,000 for a used car during the month of July as the supply of new cars begins to increase.

“At the moment, we have about eight to nine days of supply of new cars in the field. If you take our BMW brand with which we have 15 stores, by October and November we will have a 25-30 day supply that will start to replenish used inventory for all dealers, and that will help alleviate the price, ”Dyke said. “We’ve never seen this before where you have a reversal where wholesale prices are really higher than retail prices, but this is all coming to an end. “

The increased value of trade-in opportunities will likely encourage new car buyers to offer their current vehicle to dealerships and retailers. The average trade-in value of a used vehicle in June was $ 21,224, up 75.6% year-over-year, according to Edmunds.

By 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% year-over-year increase, according to Edmunds.

Semiconductor shortage impacts automotive industry

A used car dealership is seen in Annapolis, Md. On May 27, 2021, as many car dealers across the country run out of new vehicles as a shortage of computer chips has nearly halted production for many car makers. vehicles.
Jim Watson | AFP | Getty Images
Inventory of new cars has been hampered due to the continuing shortage of semiconductor chips, a problem that persists.
Last week, General Motors halted most of its US and Mexican production of full-size pickup trucks like the Chevrolet Silverado and GMC Sierra. Production is expected to resume this week, the company said.

Ford also cut production of vehicles in North America from July to early August due to a shortage of chips, affecting vehicles like the Ford F-150, Bronco Sport and the Explorer. The company said in its results last week that critical parts supplies were improving, but it lost production of around 700,000 vehicles in the second quarter. In April, Ford predicted a negative impact of about $ 2.5 billion from the semiconductor shortage, which it declined to provide an update last week in its report.

While Dyke has said he expects the chip shortage to “ease here in the months to come,” the limited supply of cars has been beneficial for companies like Sonic Automotive that sell high-end cars. ‘occasion.

Sonic Automotive posted revenue of $ 3.4 billion in its second quarter ended June 30, up 58.7% year-over-year and a new quarterly record for the company. Specifically, used vehicle revenue grew 56.6% year-over-year.

EchoPark Automotive, a division of Sonic Automotive that sells used vehicles, also set a record quarterly profit with revenue of $ 595.6 million, up 88.9% year-on-year. the other. Retail sales volume grew 68.9% year-on-year.

Sonic Automotive has announced that it is undertaking a strategic review of EchoPark, citing the division’s success and confidence in a lead for continued expansion. One option could be to turn the division into a new state-owned company, although Sonic Automotive has said it is considering a full range of alternatives.

Several other used car chains have gone public in recent years, including Carvana in 2017 and Vroom in 2020.

CarMax, the largest used car dealership in the United States, saw revenue increase 138.4% year-on-year in its fiscal 2022 first quarter ending May 31, to reach $ 7.7 billion. dollars. The company sold 452,188 units through its retail and wholesale channels in the quarter, up 128% from the previous year.


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