With a low supply of new vehicles, prices for used models driving up
As a shortage of microchips keeps new-vehicle lots in Houston barren, consumers in a pinch are turning to used models, driving demand so high that many used cars are selling for more than their newer counterparts.
A study of the Houston market by research firm iSeeCars found the Dodge Challenger and Dodge Charger top the local list of lightly used models going for much higher prices than new versions — nearly $8,000 more (23 percent) on average than the new Challenger’s $34,286 price tag, and $5,000 more (14 percent) for a new Charger, which costs $36,615 on average. With the chip shortage restricting supply as demand eclipses levels set before the pandemic, some are willing to pay a premium for a used model they can get today rather than wait for weeks for a new one.
Nationally, iSeeCars identified 16 models with used car prices that are higher than their new counterpart, including the Kia Telluride, the GMC Sierra 1500 and the Toyota Tacoma.
“The bottom line is you have a whole contingent of people who want cars that didn’t 15 months ago,” said Karl Brauer, executive analyst for iSeeCars. “Plus the chip shortage. That’s why prices have shot up.”
Because dealership
groups such as Chris Gillman’s Team Gillman Auto Group aren’t getting enough new vehicle inventory to keep up with demand, they’re also not taking in nearly as many used vehicles in trades, Gillman said. That means they’re not getting enough used cars, which they in turn send to auction. And so the used market is missing that source of inventory.
“Dealers are not sending cars to the auction, and since they’re not sending them to auction, that is inflating the value of the cars,” Gillman said.
Once new vehicle inventory starts coming in again, he and other dealers will start trading and sending used models to auction again. When that happens, consumers who bought at inflated prices will see the value of their vehicle drop and they will likely owe more to the bank than what their vehicle is worth.
“It’s going to create a negative equity position for a customer buying a used car,” Gillman said.
He said he normally has around 500 new vehicles on the lot at Team Gillman Subaru North, but now he has around 30. Even so, “the market right now is as strong as it’s ever been.”
“I’m pre-selling cars into next month,” he said. “The car sits on the lot for maybe a day or so and then it’s gone.”
Other models selling significantly above their newer versions in the Houston market include the GMC Sierra 1500, which according to iSeeCars is selling for $4,724 more than new; the Chevrolet Colorado, selling for $1,736 more; and the Ram 1500 pickup, selling for $2,145 more.
The study defined new cars as models from this year or last, and lightly used as cars from model years 2020 or 2019 with fewer than 3,000 miles. According to the study, a lightly used Ford F-150 is selling for around $1,500 more than new, which cost around $51,000. Lightly used versions of the Hyundai Tucson, Jeep Grand Cherokee, Volkswagen Tiguan and Jeep Gladiator are also selling for more than new models.
It’s a strange moment for the auto industry, Brauer said. “Used cars as appreciating assets is not a normal thing.”
The average lightly used car cost 3 percent less than the newer model last month, a far narrower gap than in November, when consumers saved 11 percent by opting for lightly used models, according to iSeeCars.
“It varies from model to model,” Brauer said. “In general, there are not enough new cars in pretty much every category and every vehicle type.”
Still, the shortage has not yet affected the monthly volume of new vehicle retail sales in the Houston region, according to the June TexAuto Facts Report published by InfoNation Inc., a Houston-based auto data firm. Local dealers sold 21,606 new vehicles last month in retail sales to Houston consumers, down 15 percent from the 25,289 sold the month before.
The month-to-month decline should instead be attributed to seasonal lows, said Daniel McDowell, InfoNation’s president and owner. June is normally a slow month for the local auto market, he said. Last month’s performance still exceeds by 21 percent the 17,794 retail units local dealers moved in June 2019.
McDowell said retail volume will likely show more of a dip this month.
“I don't think we can sustain this level of new vehicle sales,” he said, noting Chrysler just announced it is paring back assembly lines because of the chip shortage. “It’s just starting to impact all new car manufacturing across the board now.”