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Home / Used-car market goes ‘bananas’ as prices soar
LAWRENCEVILLE, N.J. — The 2019 Honda Civic that kicked off a used-car auction earlier this month would have been nothing special before the pandemic. But as automotive dealer Brad Wimmer watched, the online bidding quickly became, to quote him, "bananas."
As a new car, the Civic would have had a sticker price of about $21,000. But within seconds at the wholesale auction, the 2-year-old model, with 4,000 miles, sold for $27,200.
Soon after, a Nissan Rogue fetched what it would have cost new in 2018. A 3-year old Toyota Camry with dents and scratches sold for $14,200, nearly twice what it would have brought a few years ago. And a 2015 Kia Sorento sold for $12,600, a staggering amount for a 6-year-old car with 83,000 miles.
For Wimmer, owner of AutoLenders, such sky-high prices have become the norm at the auction, where dealerships nationwide buy and sell used cars.
The unraveling of the used-car market is the most tangible result of a problem that has plagued the global economy for the past year: a dire shortage of computer chips that has hobbled auto manufacturing. The crisis has created a political headache for the Biden administration as inflation fears surge, and troubles for consumers as they realize that the used-car market is no longer a low-price option.
"It's going to be really, really tough for consumers to buy a vehicle in 2022 … you're going to have to pay a very high sticker price," Wimmer said as he watched the auction, which used to attract more than 1,000 car dealers to Manheim, Pa., every week but since the pandemic mostly operates online.
Demand for the chips, also known as semiconductors, is soaring as more electronic products require the components to function. The pandemic accelerated demand as consumers gobbled up new computers and household goods. But chip supply is limited by a lack of semiconductor factories and by the monthslong process needed to make the components.
That's forced automakers to slash production because they can't get enough chips to power all the newest technology in their cars. The global auto industry will produce nearly 4 million fewer vehicles than planned this year because of the shortages, according to the consulting firm AlixPartners. By July, only 1.2 million new cars were on U.S. dealers' lots, down from 3.5 million before the pandemic, according to data provider Cox Automotive.
With far fewer new cars hitting the market, prices for used cars have soared by more than 24 percent in the United States over the past year, while new-car prices are up nearly 9 percent, according to the Labor Department.
Poorer households are especially likely to feel the burden of pricier used cars, said Michael Hicks, an economics professor at Ball State University in Muncie, Ind. They often own older cars more apt to break down.
If high prices continue, they could also become a drag on employment. "If this is still a story in October 2022, there could be a number of people finding it difficult to get to work because they can't find the automobiles they need," Hicks said.
The pricing frenzy has made for a "grueling" car search, Elvalynne Pala said while collecting a 2018 Honda CRV from the AutoLenders dealership.
"If you don't get the car immediately, somebody's buying it right out from under you," said Pala, a resident of nearby Bucks County, Pa. "I almost had the problem with this car. And it just seems like people are buying without even seeing the vehicles."
She spent about $27,000 on the Honda, which has 23,000 miles on it. That was a few thousand dollars over her budget but the best deal she could find after weeks of looking on CarMax and CarGurus, she said.
One of the main factors inflating prices: Rental-car companies for the first time have become major buyers of used cars at auction, instead of big sellers. That's because they can't get enough new vehicles.
Normally, Hertz and other car rental companies buy new cars directly from manufacturers, receiving discounts because they buy in bulk. But automakers lately have pushed rental companies to the back of the line and prioritized deliveries to dealerships that have customers waiting, said Grace Huang, president of Manheim, a company that runs the used-car auction.
Nearly every decent used car at the Oct. 15 auction attracted a flurry of bids from big rental-car companies and national retailers such as Carvana, which had deep enough pockets to outbid local dealerships every time.
"Hertz, Carvana, Avis, Hertz," Wimmer said as he watched the offers flood in for a 2019 Acura RDX. The car, which would have fetched $37,500 when it was new, finally sold to Enterprise for $40,200.
A 2-year-old minivan prompted feverish competition before Hertz won it for $39,200, a few thousand dollars over its original sticker price. While that cost may seem high, "they're going to rent that for $700 a day in Orlando," said Wimmer's colleague, Greg Markus. (Actual Hertz price for a seven-seat minivan in Orlando with early November pickup: about $416 per day or $1,769 per week, according to the company website.)
Hertz and Avis didn't respond to requests for comment. Enterprise said it "will continue to work through all channels" to meet demand for rental cars.