Thursday, January 07, 2021

Used vehicle prices up as supply sinks, but relief is coming


This is from last October but it is a good example of how supply and demand work. Excerpts:

"It cost a whole lot more to buy a used SUV, car, truck or van last month than it did before the coronavirus hit, and that almost singlehandedly caused September’s modest consumer price increase.

Blame it on the pandemic, which knocked supply and demand way out of whack, causing prices to spike.

The good news is that inventories are being replenished, and prices are beginning to drop.

“The law of supply and demand worked,” said Earl Stewart, owner of a Toyota dealership in North Palm Beach, Florida. “I think things are coming back to normal.”

When the novel coronavirus made its way to the industrial Midwest and the South in March and April, it forced automakers to shutter factories, and many dealers closed. Sales of new vehicles tanked. With few vehicles being traded in for new ones, and leases being extended, the supply of used vehicles dried up.

At the same time, automakers weren’t producing many lower-priced cars, forcing many buyers into the used-vehicle market. Plus, people who were wary of returning to public transit ended up buying vehicles. Many were armed with government stimulus checks as a down payment. [these factors increased demand]

Also, lenders had moratoriums on repossessions of vehicles, cutting off another source of used vehicles, said Alex Yurchenko, senior vice president of data science for Black Book, an automotive analytics firm that helps dealers determine vehicle prices. [these factors decreased supply]

As a result, the average asking price of a used vehicle that was 10 years old or less rose more than 9% from $19,800 in May to $21,600 in September, Yurchenko said."

"Now, new-vehicle production is pretty much back to normal, but inventory hasn’t been replenished because of growing demand, especially for pickup trucks, said Jeff Schuster, senior vice president at LMC Automotive, a consulting firm."

"That has pushed new-vehicle prices to record levels, pricing many lower-income people out of the market and sending them to used vehicles. J.D. Power reported the average new vehicle price hit an all-time high of $35,655 in September." [if we consider new and used cars to be substitutes, we know that when the price of one goes up, the demand for the other will increase]

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