Used vehicle prices up 26% in March; record values expected this spring

Wholesale used vehicle prices in the United States rose by 5.8% in March, from February, and were up 26.2% from March 2020, according to the Manheim Used Vehicle Value Index. Economists said used vehicle values are expected to hit record levels each month this spring.

In a recent conference call on the index, Zo Rahim, manager of economic and industry insights for Cox Automotive, said the index rose to a record high in March. The prices are strong, have risen since April 2020 and are stronger compared to the same period last year, he noted. The increase in prices and used vehicle demand can be attributed to the economic recovery, stimulus money and tax refunds, he added.

Jonathan Smoke, chief economist for Cox Automotive, said he doesn’t expect a correction in the used vehicle market and used vehicle demand is expected to remain until at least this summer. Vehicle supply is tightening, demand is about as tight as possible, price increases are likely to continue, he added.

“Higher values have translated into previously unthinkable retention values, up 12 points compared to last year and more than 13 points higher than 2019,” Smoke said. “And we haven’t seen the peak yet.”

While COVID-19 has impacted the United States since March 2020, he said he expects U.S. herd immunity by this summer. He also expects the 6% unemployment rate in March to continue to recover. Based on improving consumer sentiment, consumers are spending, he said. New retail sales rose by 10.5% in March, from the same month in 2019. Smoke noted that until this year, March 2019 sales were the best March sales since at least the Great Recession.

“This year topped it,” said Smoke, adding that used retail sales were up 4.6% in March, from the same month in 2019. “I have full faith that April will actually end up stronger than 2019 as well, but there are some challenges, especially on the supply front.”

New vehicle sales are projected to be 16.1 million in 2021. Meanwhile, used retail sales are expected to be 21.5 million and slightly higher than 2019 levels. He said 1.8 million fewer vehicles were in the wholesale market in 2020 compared to 2019. The inventory levels will rise but are not expected to return to 2019 levels. Smoke said as new vehicle production rises in the second half of 2021, supply conditions will start to improve and contribute to rising used vehicle prices. Vehicle values are expected to be higher at the end of 2021 than they were at the end of 2020. More normal trends in vehicle values are not expected to return until 2022, he said.

Scott Maybee, president of NextGear Capital, said he expects used vehicle volumes at independent dealers to grow at a faster rate than retail used vehicle sales. Inventories of used vehicles between 4 and 9 years old are projected to rise over the next several years, Maybee said. He noted franchise dealers compete heavily for vehicles that are 1 to 3 years old, but independent dealers have more vehicles that are 4 to 9 years old.

“The supply of these vehicles has been at historic lows from 2013 to 2019 due to low production levels during the Great Recession of 2009, but supply is rebounding in 2021, which will help propel independent dealers forward,” he added. “This inventory is very feature-rich. This is when backup cameras and other tech features were becoming more standard, so as the consumer looks for more value-conscious buys, the independent dealer stands to gain.”

Rogers-based America’s Car-Mart historically has sold vehicles that are an average of about 10 years old, but in its first-quarter earnings call for fiscal 2021, Vickie Judy, chief financial officer, said it had acquired some newer, lower mileage vehicles as a result of rental car companies reducing their fleets. The vehicles were acquired at affordable prices for customers, said Judy, adding that this will continue to be a part of the company’s procurement effort. In the third quarter of fiscal 2021, the average sales price for vehicles rose by 16.5% to $13,688, from $11,750.