Used-Car Buying ‘Frenzy’ Lets Up, But What a Ride

It’s seemingly destined to go down in U.S. used-car history as “the frenzy” of 2021.

Pre-owned vehicle sales set eye-opening records last spring. They’ve since ebbed a bit to something close to normal, says Cox Automotive’s Chief Economist Jonathan Smoke.

“We have to adjust the frame of reference from the spring to a more normal situation, but there’s still a high demand and strong market,” he says during a review of Cox’s quarterly Manheim Used-Car Index report.

“If scripted, the frenzy most emulates a situation that (sellers) would like,” Smoke (pictured, below left) says of sales in spring, May in particular.

That situation included a high consumer demand for used cars amid a new-car inventory shortage. That led to used-car inventory shortages, too.

Mightily spurring the whirlwind selling: Many consumers received federal government stimulus checks, tax-return refunds and extra COVID-related unemployment benefits.

Vehicles usually are depreciating assets. During the frenzy, some of them appreciated in value. Now, they’re back to depreciating with age.

Wholesale price trends for top-selling vehicles at Manheim auctions showed a 1.3% decline in June compared with May, but prices were up 34.2% compared to June of 2020.

All those models saw big year-over-year gains. For instance, a 2018 Nissan Rogue CUV with all-wheel drive went for an average of $21,000 at auction June 1 compared with $16,750 at the same time a year ago. A 2018 Ford Explorer at auction went for $31,200 in early June compared with $25,700 year-ago.

Jonathan smoke 2 (002)_1

Although inventory levels remain tight, “we are entering a more normal level of (used-car pricing),” Smoke says. After all, “vehicles are depreciating assets.” Or they’re supposed to be. The economist describes the recent high used-car prices as “abnormal.”

Largely because of spring’s feverish buying patterns, he predicts sales of 2021 pre-owned vehicles will hit 39.3 million in the U.S. That’s a 26% increase on the Manheim Used-Vehicle Value Index.

“Used-car prices appreciated dramatically in six months,” says Kevin Chartier, vice president of Manheim Consulting. “They were getting close to bumping up to new-car prices. When the new-car inventory levels increase, we’ll see equilibrium in used-car prices.”

The stimulus checks, tax refunds and extra unemployment compensation presumably are done for the year. Although that gravy train has stopped – for now, anyway – Cox’s online automotive marketplace websites Autotrader and Kelley Blue Book “are seeing no slack in demand,” Smoke says.

He offers a possible reason for that: Rather than society becoming less dependent on personal vehicles (as some prognosticators had said), “society has become more dependent on vehicles.”

Steve Finlay is a retired WardsAuto senior editor. He can be reached at [email protected].