A pedestrian walks past a certified used car dealership in Alhambra, California on January 12, 2022.
Frederick J. Brown | AFP | Getty Images
Used car wholesale prices were down in February from January, a sign that while prices remain at record levels, growth in used car prices in the US may be easing.
Cox Automotive said Monday its Manheim Used Car Value Index, which tracks the prices of used cars sold at Manheim wholesale auctions in the US, was down 2.1% in February from January.
However, on average, used cars are historically expensive. The index is down from a record high in January, but still up 36.7% year-over-year.
Supply chain disruptions related to COVID-19 — in particular the persistent global shortage of semiconductor chips used in cars, trucks and SUVs — have forced automakers to curtail new vehicle production. This, in turn, has caused a surge in used car demand and used car prices over the past year.
Although almost all used cars are more expensive than a year ago, the growth has not affected all categories of used cars equally. Cox data shows that while compact car and van prices rose 44.9% and 48.4% year-over-year in February, respectively, used pickup truck prices rose just 24.8%.
The discrepancy between trucks and compact cars is a reflection of the stock status of new vehicles. Automakers, including Ford Motor, General Motors, and Chrysler’s parent company Stellantis, have opted to build their high-margin (and big-selling) pickups over less profitable compact models because of the chip shortage. This means that consumers hoping to buy a new compact car or SUV are likely to be out of luck and more likely to look for a similar model in the used car market than truck buyers.
But even the production of pickup trucks is not immune to failures. Over the past year, all three Detroit automakers have had to cut truck production from time to time. And it’s not over yet: Ford confirmed last week that it was once again forced to cut production of its Super Duty pickup trucks and large SUVs due to semiconductor shortages.
Efforts are being made to increase chip production in the US and around the world. Chip makers including Intel and TSMC began building new US semiconductor manufacturing plants last year.
Some automakers aren’t waiting. In November, Ford said it would partner with chip supplier GlobalFoundries to expand its access to the chips. General Motors has begun working with several chipmakers on new designs that will significantly reduce the number of chips used in its future vehicles.
Automotive semiconductor supplies should start to improve later this year as new factories start operating. This, in turn, should reduce the shortage of new cars and reduce the demand for used cars.
But Russia’s invasion of Ukraine could exacerbate the chip shortage soon. These countries are important suppliers of neon gas and palladium, two commodities critical to chip manufacturing.