Used cars prices jump as new car production drops

Those looking to buy a late-model car, truck or sport utility vehicle may suffer from sticker shock when they see the price of used vehicles, which the U.S. government’s consumer price index calculates have risen by about 30% since May 2020.

“It’s all about the inventory. There’s a high demand and a low inventory,” said Lisa McIntyre, executive director of the Greater Pittsburgh Automobile Dealers Association, a trade association representing about 200 dealerships in Southwestern Pennsylvania.

When there is not a sufficient number of new vehicles to fill demand or buyers don’t want to pay new car prices, they turn to used cars, pushing prices up, McIntyre said.

A certified pre-owned vehicle rose in price from about $10,000 in February to about $11,500 to $11,800 now, said Jeff Dohallow, general manager for Kenny Ross Subaru in North Huntingdon.

At Nick Chevrolet in Tarentum, sales manager Glenn Harbison said the dealership saw used car prices rise “probably ($4,000) or $5,000 more than at the beginning of the year. In essence, the used car market is exploding,” Harbison said. “Unfortunately for the consumer, but it’s just the way that the market is.”

“The used cars are worth more than they’ve ever been,” said Mark Smail, general manager of the Smail Auto Group, a Hempfield family business that has been in the auto industry since the 1950s.

At Hillcrest Volkswagen in Lower Burrell, general manager Bob Bordonaro said the dealership placed more money on trade-ins “just because of what the market is doing.”

“We aren’t just taking cars and raising prices,” Bordonaro said.

At Choice Auto, a Murrysville used car dealership, “the prices are significantly higher and are going up,” said Ray Murphy, finance manager. Some used vehicles have jumped up from $2,000 to $4,000, he said, but that has not prevented 2021 from being “extremely busy.”

Managers and owners at several dealerships in the region say higher prices haven’t deterred buyers because “we’re selling a lot of certified pre-owned vehicles,” Dohallow said.

The average price for those used vehicles is about $22,500, said Umar Sheikh, an assistant vice president and credit analyst manager at Euler Hermes North America, a research firm.

Sheikh is not optimistic about a quick resolution, predicting the imbalance between supply and demand and higher used car prices will linger into the late third quarter or early fourth quarter.

U.S. auto sales for the year are expected to hit 15.8 million vehicles, based on sales as of June, according to analysts from J.D. Power and LMC Automotive. That sales number is about 2.6 million vehicles higher than during the pandemic restrictions in June 2020, but still fewer than the 17 million vehicles sold in May 2021 and June 2019. Auto industry analysts foresee better sales in the second half of the year.

Pandemic impact

The pandemic reduced the demand for vehicles because people were staying at home for work and not going on vacation last year.

Automakers, in turn, cut back on the assembly line workforce to prevent the spread of covid, Dohallow said. Some autoworkers did not want to work for fear of catching the coronavirus, thus reducing the number of people available to make vehicles.

The Big Three automakers in North America — Fiat-Chrysler, Ford Motor Co. and General Motors Corp. — are expected to produce about 750,000 fewer vehicles this year than projected, Sheikh said.

With fewer people buying new cars last year and some dealers not permitted to sell new cars because of covid, automakers did what seemed to make good economic sense — they canceled supply contacts, Dohallow said. That meant the semiconductor chips needed to operate so many functions of the vehicles weren’t sitting in the assembly plant’s storage room.

Those tiny semiconductor chips did find a home in all the electronics people were buying because they were working from home, using devices such as smartphones and laptops, Smail said. Contracts that might be filled by auto manufacturers went to the electronics industry, he noted.

The loss of those semiconductor chip supply contacts was exacerbated, Smail said, when a fire struck a Japanese chip plant in March. That plant, according to Reuters, supplies close to one-third of the semiconductor chips used in the auto industry.

So, Robert Thomasson III, general manager of Spitzer Toyota in Monroeville, said that meant there weren’t the 200 to 300 chips for each new Toyota vehicle.

And that didn’t just affect Toyota.

“Inventory (of new Volkswagens) is the lowest I’ve seen in the last, probably, 25 years,” Hillcrest’s Bordonaro said.

The new-car inventory has dropped to 16, when normally the dealership has about 70 new vehicles on the lot, Bordonaro said. The drop, in part, resulted from the manufacturer temporarily stopping production for U.S.-made VWs. Production recently restarted.

Dealers go shopping

Smail said they have turned to buying cars from customers who are not even shopping for another vehicle. Maybe the seller is the senior citizen couple who realize, after a year at home, they don’t need a second car. They also may buy a leased vehicle when a motorist’s lease is up, he noted.

Harbison at Nick Chevrolet said the dealership is purchasing leased vehicles and used models from owners looking to sell. The trade-off for higher used car prices is that owners are getting more money for their trade-ins or sale of their used vehicle, Harbison said.

But, Thomasson said, “that market (buying used vehicles) is gone,” as of the second quarter.

Added to the difficulty in obtaining used vehicles is the competition from rental car companies that normally stock new vehicles, Smail said. Those companies are snatching up the late-model vehicles for their fleet when they can’t fill their need with new vehicles.

“The biggest hurdle is not selling the cars. It’s getting the cars,” Choice Auto’s Murphy said.

Choice Auto owner Kirk Rettger said they typically have an inventory of 200 cars, but are down to about 150. And to maintain that inventory has meant casting a wider net for used vehicles, including bidding on cars from out-of-state sources, Rettger said.

With dealers holding on to certified pre-owned vehicles and not sending them to auto auctions, that makes it tougher for businesses in the region that only stock used vehicles, said Thomas Barchesky, a partner in the family-owned Superior Motors used car sales along Route 30 in Unity.

“There’s none (late-model cars) for us,” Barchesky said.

Smail and Thomasson say their dealerships send few used cars to auto auctions. Those that do go would not qualify as certified pre-owned vehicles and would cost too much to repair and refurbish.

Thomasson said a national used car buyer will come to the lot and assess a vehicle, set a price, shop it on the Internet to customers and it could be gone in a few days, without ever paying someone to drive it to the auction.

And some of the cars that are going through the auction “are going for retail value” rather than wholesale prices, leaving little room for a profit, said Barchesky, whose grandfather opened the business in 1964.

Barchesky said, when he goes to the auction, he is competing against larger used car dealerships with deeper pockets, like Blue Knob Auto Sales near Duncansville and national buyers like Carvana.

Used cars dealers are watching their inventory, not wanting to lose money when used car prices eventually drop.

“I don’t think the bottom is going to fall out tomorrow,” said Choice Auto’s Rettger.

Dohallow is not optimistic that the shortage of late-model used cars, coupled with higher prices for existing inventory, will rectify itself anytime soon.

Smail predicted the supply and demand for used cars will right itself by the end of the year, as more new vehicles become available.

“We’re going to be in the used car business in July and August,” Smail said of the dealerships.

Joe Napsha is a Tribune-Review staff writer. You can contact Joe at 724-836-5252, [email protected] or via Twitter .

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