Early signs of a resurgence in used car buying are waking up the industry from its pandemic-induced doldrums. We’ve heard from two large clients in the past few days that auction prices are higher than anticipated as dealers across the country seek to increase their inventories. This flies in the face of earlier reports of a glut of used cars and an avalanche of off-lease vehicles coming down the pipe.
It seems counterintuitive. The Hertz bankruptcy will result in much of their fleet offered for resale. Several municipalities are reducing their budgets by cancelling orders for new fleet vehicles and shifting to more vehicle-sharing models in order to reduce the size of their fleets. The combination of fleet liquidations and lease returns should mean ample inventory for the used car market. We shouldn’t have a shortage of used cars available to dealerships.
What we may have is a supply chain issue. With social distancing restrictions still in place, many auction lots remain closed or diminished for live auctions. Online auctions are available, but may be inadequate to the task of moving the volumes required. Also, automakers and their finance arms are reportedly trying to slow the off-lease vehicle transactions to avoid flooding the market. KAR Global is buying land to hold vehicles for their better customers. These factors may be keeping wholesale prices high and putting a squeeze on dealerships trying to make up for 3 months of scant business.
While the recent uptick in used car sales is a hopeful and promising sign, it’s too soon to call recovery. The economic impact of millions of Americans unemployed is yet to be fully understood. Previous down economies have increased used car sales at the expense of new, and franchise dealers are trying to expand their used inventories, partly because of manufacturing delays, and partly in anticipation of reduced interest in new cars.
This appears to be just another peak in what promises to continue to be a bumpy road to recovery.