Time to cash in on your old clunker?
As new car inventory dries up, used values skyrocket
Used car values are skyrocketing as new car production grinds to a halt amid the ongoing chip shortage. It may be a golden opportunity to sell.
With new car production grinding to a halt during the ongoing computer chip shortage, that old clunker at the end of the driveway is starting to shine again.
As the country emerges from pandemic stasis ready to hit the road, there’s a dearth of new cars on dealer lots, and a growing number of buyers turning to the used market, making it potentially a great time to sell your old car — especially if you don’t plan to replace it.
“For consumers that want to sell their vehicle and they don’t need another one, I think now is really a golden age for that,” said Jessica Caldwell, executive director of insights at car shopping website Edmunds.
Used car values are skyrocketing as new car inventory dries up, creating robust demand for everything from well-traveled minivans to late-model pickup trucks. Edmunds said the average value for used vehicles traded in during the month of March hit an all-time high, climbing to $17,080, compared with $14,160 a year ago.
Once the domain of plaid-jacketed salesmen and buyer-beware horror stories, the increasingly corporate used car segment plays an integral role in the automobile supply-and-demand model, recycling everything from rental and corporate fleet vehicles to the family sedan, as owners trade in old for new. Last year, more than 38 million used vehicles were sold, compared with 14.5 million new cars, Caldwell said.
Online platforms and national retailers have supplanted traditional used car lots for many consumers, but the more recent spike in appreciation of and for used cars reflects the pandemic-fueled disruption of the automotive industry.
The semiconductor shortage and plant shutdowns reduced new car inventory by 48% year-over-year in
April, a situation that will likely get worse before it gets better, Caldwell said. As new cars become scarce, the prices rise as well, with a record 13% of shoppers paying above sticker price in April, Edmunds reported.
General Motors, which has shut down production at a number of U.S. plants, reported near-record first quarter profits but said on an earnings call Wednesday it will take until late 2021 or early 2022 to build its new car inventory back to “optimal” levels.
Stellantis said Thursday the Belvidere Assembly Plant near Rockford, which makes the Jeep Cherokee SUV and has been shut down since March 29, will remain closed through May because of the chip shortage.
On Wednesday, Ford Motor Co. extended the shutdown of its Chicago Assembly Plant through the end of May. The plant on Chicago’s Southeast Side, which makes the Ford Explorer, Lincoln Aviator and Police Interceptor SUVs, has been closed since April 12, idling about 5,200 employees working three shifts.
Ford said it will build 1.1 million fewer new cars in 2021 because of the chip shortage.
Highland Park Ford is among the Chicago-area dealers already feeling the pinch.
“We’re running out of cars,” said Marty Price, co-owner of the 36-yearold north suburban dealership. “Business right now is OK, but when you run out of cars, it won’t be.”
The dealership, which normally stocks more than 300 new cars, is down to 135, Price said. In-demand new models such as the Bronco Sport and all-electric Mustang Mach-E SUV are selling at list price, if you can locate them, Price said.
Highland Park Ford sold about 100 new and 60 used cars in April, Price said.
While new car inventory is sparse, Highland Park Ford still has about 100 used vehicles in stock, roughly its normal level. But Price said used car inventory will begin to shrink as new car sales wane.
“If we don’t get cars coming off lease or coming back in trade, we’re going to be short of used cars eventually,” Price said.
Kelley Blue Book, a century-old vehicle valuation service, said Thursday supply is already tight, with 2.34 million used cars available for sale in the U.S. — 530,000 fewer than a year ago.
Sales are up and inventory is down at CarLotz, a growing Virginia-based national used car consignment network that went public in January with a market cap north of $800 million.
Launched in 2011, CarLotz entered the Chicago market three years ago at a former Packey Webb Ford dealership in Downers Grove. It has 11 locations in eight states and is planning to open its second Chicago location this summer at a former Maserati dealership in Highland Park.
Michael Bor, 47, co-founder and CEO of CarLotz, said sales have been brisk at the used car “hub” in Downers Grove, with inventory dropping from 600 to 200 vehicles over the past few months.
“We’re selling a lot of cars,” Bor said. “The lack of supply of new cars has people who would otherwise be buying a new car buying a used car.”
Unlike a traditional used car dealership, CarLotz charges the seller $1,000 per vehicle, which it preps, displays at its hub and lists online. At retail price, most sellers generally do better on consignment than trading in at wholesale valuations through a dealer, Bor said.
In addition to consumers, CarLotz works with large fleet management companies, which have been unable to trade in their leased cars for new ones this year as automakers cut back on production. That, along with increased buyer demand, has contributed to the dwindling supply of used cars, Bor said.
“We’re not seeing as many vehicles from our commercial accounts as we ordinarily would,” Bor said. “So you’ve got this double whammy of very low supply and very high demand that’s shrinking dramatically the number of used cars that you’ll see on dealership websites and lots.”
In 2020, CarLotz generated about $119 million in revenue, with projections to top $300 million this year, despite the shrinking supply of used cars.
The adage that your new car loses half its value when you drive off the lot has proved irrelevant this year. Edmunds recently released a list of the 2018 vehicles with the best trade-in value, topped by the Ford F-250 Super Duty, GMC Sierra 2500 Heavy Duty and Ford F-350 Super Duty pickup trucks, which averaged 80% of their original price after three years.
Even 3-year-old minivans retained an average of 56% of their value in the current used car market, according to Edmunds.
While used car prices are at record highs, those thinking about selling should keep in mind that replacing a vehicle with a new or used car will also be relatively expensive.
Used car prices are ticking up so fast that Bor cited a Virginia customer who bought a Range Rover last year for $26,000 and sold it this year for the same net price, essentially driving it for free.
The buyer received an extra vehicle from a family member and didn’t need the Range Rover anymore, Bor said, highlighting perhaps the best way to game the red-hot used car market.
“If you have an extra vehicle that you’re not using, now’s a great time to sell it,” Bors said.