“We’re In Fantasyland” – Soaring Used-Car Prices Allow Sellers To Take In More Than They Paid
The latest Labor Department report on consumer prices shocked economists when they saw how prices for used vehicles soared 10.5% in Jue, following already-robust increases of 7.3% in May and 10% in April. As the economy overheats and global shortages of computer chips crimps new-car production, an extremely rare phenomenon has turned the auto world upside down.
For the first time in recent memory, prices on used cars are “defying gravity,” according to WSJ.
Once seen as the ultmate depreciating asset, some car owners are being offered even more money than they originally paid for their vehicles, especially for certain popular models like the Kia Telluride and the Toyota Tundra. The problem is that consumer demand for cars and trucks has surged (thanks in part to all the federal stimulus dollars sloshing around in Americans’ bank accounts).
To be sure, for most models, used vehicles can still be had at a lower price than the newer cars. But if things don’t change soon, most in-demand used models will see their prices remain elevated for a long time.
“We have a long way to go before prices come down,” said Tyson Jominy, an auto analyst with research firm JD Power.
But according to data from JD Power, the average price paid by a customer in June for a one-year-old vehicle was only $80 less than the selling price of a brand-new vehicle. Typically, the gap is closer to $5,000.
The impact of this shift can already be seen in dealerships’ marketing materials. Dealers typically run ads advertising prices on cars they’re hoping to sell. Now, they’re telling customers how much their cars are worth.
Some dealerships are even offering “drive-through appraisals.”
“It just seems like we’re in fantasyland,” said New England auto dealer Abel Toll.
And for low-mileage vehicles, offers equivalent to what customers initially paid aren’t uncommon.
Amid this used-car gold rush, some dealership owners say they’re worried customers who buy now will end up being dissatisfied with the high prices when their vehicles depreciate more rapidly in the years to come.
But some are milking it for all it’s worth. One small-business owner traded in his entire fleet of trucks and decided to use the premium to finance upgrades to more “high content” models. “I can’t imagine this will last for much longer, so I decided to go all in.”
Fri, 07/23/2021 – 18:00
Source: Zero Hedge News
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