A shortage of computer chips has halted auto manufacturing, driving up the cost of used vehicles.
Arlington: The used car market in the United States is witnessing an unprecedented phenomenon: owners sell vehicles for as much or more than what they pay.
The turning point comes as a global shortage of computer chips has halted auto manufacturing amid the COVID-19 pandemic, fueling price hikes for used vehicles, which helped record US inflation last year.
It’s “100 percent a new trend,” said Aurelian Giloud, owner of Arlington Auto Group (AAG), a car dealership based in Arlington, Virginia, outside the nation’s capital.
He said that due to paucity of new vehicles, the demand for used cars has picked up.
New government data on Wednesday showed US consumer prices rose seven percent last year, the biggest increase in nearly four decades, fueled in large part by a massive 37.3% jump in the prices of used cars and trucks.
Given the struggle to get semiconductors from factories in Asia amid the pandemic, which has limited new car inventories, car rental companies are hanging on to their fleets, cutting off the usual steady supply of vehicles for the used car market. and increasing the prices.
And the strict lockdown to include the Omicron variant in China could exacerbate supply issues.
“Compared to a year ago, you now buy the same car for $20,000 instead of $16,000,” and sell it for $24,000, said AAG manager Eddie Malikov.
There are 40 vehicles up for sale in the dealership lot, which is less than its usual pre-pandemic inventory. Last year was a strong one for AAG, which sold 300 to 400 cars despite price hikes that turned many customers away.
Americans’ reluctance to use public transportation amid the pandemic is also a factor driving the high demand for cars.
“There’s not a lot of supply, but there’s a huge demand,” Giloud said.
He notes that travelers in Europe can choose to use a scooter or a motorcycle, but “over here, it’s a car because you have to drive.”
Rising prices have been dramatic.
Malikov recalled a customer who bought a car in 2019 for $21,000, “and he ended up trading the car in for $21,000 two years later, with 10,000 miles (16,100 more kilometres) originally, which was funny.”
In other cases, owners sell their car for more than what they bought.
In a recent study, analysts at KPMG warned that the boom in older cars would not last.
“History tells us that the current frenzy in the used car market will end,” the authors said, adding that chip shortages and supply chain problems will eventually be resolved.
Then “massive auto manufacturing machines will shift back into high gear and dealer lots will refill,” after which the used car market “will collapse,” he said, predicting a 30% drop in prices.
Analysts, however, acknowledged that it is difficult to know when this turnaround will happen and whether the decline could be “sudden or slow”.
But there are signs the major manufacturer is banking on an ongoing boom for some time: General Motors on Tuesday announced plans to launch Carbravo, a new online marketplace for GM-brand used vehicles.
The venture will compete with successful firms such as Carvana and CarMax.
Gilaud said some people are trying to take advantage of the market, and pointed to online forums where sellers accept vehicles to be resold two weeks after purchase.
But he cautioned that Virginia law prohibits individuals from buying and reselling more than five cars a year.
