Car Dealers Stop ‘Freaking Out’ About Used-Vehicle Sales

Even before the economy turned bad because of the COVID-19 virus, many automotive consumers who had the wherewithal to buy new vehicles were nonetheless opting for more affordable used ones.

So it’s no surprise that pre-owned sales, after sputtering a bit recently, now are outpacing new-vehicle deliveries as the automotive market climbs back from the depths of despair in March and April.

“Used-vehicle sales in May were only 5% below pre-virus forecast” compared with 20% for retailed new vehicles, says Larry Dixon, J.D. Power’s senior director-valuation services. “This is a stark improvement from April, and evidence that the used-vehicle market is in recovery.”

It’s also a relief to car dealers who garner much of their profit from selling used cars that carry better margins than new vehicles. They fretted about their pre-owned operations for a while.

“Across the country, everyone was freaking out that there were 60- to 90-day used inventory,” says Tom Carney, a consultant for the National Automobile Dealers Assn.

It was a “panic” situation, with many dealers slashing prices to move the aging metal. “Now, they are not trying to liquidate inventory,” he says. “They are paying attention to pricing and it’s working.”

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Used-car prices are expected to level off and slightly retreat in coming weeks as larger quantities of off-lease and off-rental vehicles enter the market. For example, the troubled rental-car company Hertz, as part of its de-fleeting effort, plans to put hundreds of thousands of vehicles on the used-car market soon.    

The strong demand for used vehicles is consistent with prior periods of challenging economic conditions, says Tyson Jominy, J.D. Power’s vice president-data and analytics.

He adds: “Less-compelling incentives on new vehicles will further bolster demand for used vehicles, and a significant number of households who would have purchased a new vehicle are switching to the used market due to affordability concerns.”

Used-vehicle retail prices have held up well and “have deviated just modestly from seasonal expectations, despite substantial headwinds,” Dixon says.

Millennials in their 20s typically are prime candidates to purchase a pre-owned vehicle, Carney says. “They are in the market for an $8,000 to $15,000 vehicle. It’s a first car for many of them. They need transportation.”