Revved up US demand for used vehicles sends costs hovering

The used automobile market within the United States is seeing an unprecedented phenomenon: homeowners promoting autos for as a lot or greater than they paid for them.

The unusual twist comes as a world scarcity of laptop chips amid the Covid-19 pandemic has stalled auto manufacturing, fueling a value enhance for used autos, which in flip helped drive report US inflation final yr.

It “100 percent is a new trend,” which is unlikely to finish quickly, stated Aurelien Guillaud, proprietor of Arlington Auto Group (AAG), a car dealership primarily based in Arlington, Virginia, simply exterior the nation’s capital.

Due to the scarcity of latest autos, there was an inflow of demand for used vehicles, he stated.

New authorities information Wednesday confirmed US client prices surged seven p.c final yr, the most important enhance in practically 4 a long time, fueled largely by the dizzying 37.3 p.c soar in costs of used vehicles and vehicles.

Given the struggles to get semiconductors from factories in Asia amid the pandemic that has restricted new automobile inventories, rental corporations have been hanging on to their fleets, reducing off the same old regular provide of autos for the used automobile market and pushing up costs.

And the strict lockdowns in China to comprise the Omicron variant may exacerbate the provision points.

“Compared to a year ago, now you buy that same car for $20,000 instead of $16,000,” and promote it for $24,000, stated AAG supervisor Eddy Malikov.

The dealership lot has 40 autos able to promote, fewer than its common pre-pandemic stock. Last yr was robust for AAG, which bought 300 to 400 vehicles regardless of the value will increase that turned plenty of prospects away.

Coming collapse?

Masaki Kondo, a journalist in Washington, purchased his Chevrolet for $60,000 in 2017. Four years later, he bought it again to his dealership in Gaithersburg, Maryland, only a half-hour drive exterior the US capital, for $62,000.

“I kept my car in the garage… so the condition of the car was good. But still, I was shocked when industrial mass production goods were priced at more than that of four years ago,” the Japanese expat informed AFP.

Kondo’s automobile seller stated they might simply promote the Chevrolet once more for $74,000.

Americans’ reluctance to make use of public transportation amid the pandemic is also an element driving excessive demand for vehicles.

“There’s not much supply, but there’s a huge demand,” Guillaud stated.

He notes that in Europe commuters may decide to make use of a scooter or a bike, however “over here, it’s a car because of the distance that you have to drive.”

Rising costs have been dramatic.

Malikov recalled a buyer who purchased a automobile for $21,000 in 2019, “and they ended up trading the car for $21,000 two years later, with 10,000 more miles (16,100 more kilometers) basically, which was kind of ridiculous.”

In different circumstances, homeowners promote their automobile for much more than they purchased it for.

In a latest examine, analysts at KPMG warned that the used automobile growth won’t final.

“History tells us the current frenzy in the used car market will come to an end,” the authors stated, noting that chip shortages and provide chain issues ultimately might be resolved.

Then the “massive auto manufacturing machine will shift back into high gear and the dealer lots will again be full,” after which the used automobile market will “collapse,” they stated, predicting a 30 p.c drop in costs.

The analysts acknowledged nonetheless that it’s tough to know when this shift will occur and whether or not the decline might be “sudden or slow.”

But there are indicators main producers are banking on the growth persevering with for some time longer: General Motors on Tuesday introduced plans to launch CarBravo, a brand new on-line marketplace for GM model used autos.

The enterprise will compete with profitable companies like Carvana and CarMax.

Guillaud stated some persons are making an attempt to benefit from the market, and factors to on-line boards the place sellers admit to reselling autos two weeks after they purchased them.

But he warns that Virginia legislation prohibits people from shopping for and reselling greater than 5 vehicles a yr.

© 2022 AFP