Forbes: Used-Car Auction Prices Climb, As Frustrated New-Car Buyers Switch To Used

Used-car prices, which analysts are watching for signs of more general price inflation, edged higher again.

The trend mirrors higher new car prices, too. A computer chip shortage has cut into new-car sales the last few months in a row, at a time of high consumer demand, for both new and used cars and trucks.

In a monthly report on used-vehicle prices at wholesale, dealer-only auto auctions, KAR Global said wholesale prices topped an average of $16,000 for the first time ever, during the week of Sept. 27, and remained above that level through at least Oct. 17.

For the entire month of September, the average used-vehicle price at wholesale auction was $15,546, up 20.3% from the year-ago month, KAR Global said. That’s up 39.4% compared with September 2019, pre-COVID.

“Wholesale prices continued to climb to new highs in September and early October, as supply remains tight, and demand remains high,” said Tom Kontos, chief economist for KAR Global, Carmel, Ind.

Dealer inventory is tight for used cars and trucks, in part because customers who want to trade in their used vehicle and buy a new one, are having a hard time finding exactly the new car or truck they want. Many customers are postponing their purchases — and their trade-ins. Others new-car intenders are switching to a used-car purchase, instead.

On the supply side, the number of lease turn-ins for sale at wholesale auctions is also low. Instead of handing them in, to be auctioned off, more and more customers and dealers are buying off-lease cars and trucks at low residual values that were set three years ago, before the current sellers’ market kicked in.

Auction volume is also low by historical standards for ex-rental cars, and for repossessions, analysts said.

At the same time, demand is particularly high for late-model used cars, Kontos of KAR Global said in a recent webinar. That’s partly as a result of customers looking for an alternative to a new vehicle, he said.

Kontos tracks auction prices for used cars and trucks that are three model-years old, with 36,000 to 45,000 miles on them. Those are characteristics of vehicles that are turned in at the end of a lease.

Those vehicles are also good candidates to be retailed at a premium, as certified pre-owned vehicles. So-called CPO vehicles are reconditioned at dealerships to factory requirements, and provided with an additional factory warranty on top of whatever is left of the original factory warranty.

Kontos said that at auction, wholesale prices for those 3-year-old vehicles on average are up more than 50% vs. pre-COVID levels. The average SUV or crossover within that category cost $29,600 at auction in September, up 33.5% vs. September 2020, and up 40.9% vs. September 2019.

“CPO sales have remained strong,” Kontos said, “as these vehicles represent the closest substitute to new vehicles lacking in availability due to the chip shortage.”

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