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Used-car prices are still sky-high, but they may be easing

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On January 12, 2022, a pedestrian passes by a pre-owned certified car lot in Alhambra (California).

Frederic J. Brown | AFP | Getty Images

The February decline in wholesale prices for used vehicles was compared to January. It is possible that, while the prices of used cars remain at near-record levels, prices could be slowing down.

Cox Automotive stated Monday that it had acquired its Manheim Used Vehicle Value IndexThe price of used cars at Manheim’s U.S. Wholesale Auctions fell by 2.1% in February, compared to January.

However, historically-priced used cars are still on the average. Although the index has fallen from January’s record high, it is still higher by 36.7% than a year ago.

Covid-related supply-chain disruptions – in particular, an ongoing global shortage of the kinds of semiconductor chips used in cars, trucks and SUVs – have forced automakers to limit their production of new vehicles. This has led to a rise in the used-vehicle market and increased prices over the past year.

Even though almost every used vehicle is more expensive now than it was a year back, this has not affected all vehicles in the same way. Cox’s data showsWhile prices for compact cars and vans increased by 44.9%, 48.4% and respectively in February compared to a year earlier, the prices for used pickups were only up 24.8%.

This is due to the current state of inventories of new vehicles. Automotive manufacturers, Ford Motor, General MotorsChrysler, Chrysler parent StellantisDespite the shortage of chips, they have prioritised production of highly-profitable (and popular) pickup trucks over smaller models.  Consumers looking for an SUV or compact car are less likely than truck-shoppers to get their hands on one.

Even pickup truck production has been affected by disruptions. Every Detroit automaker has had to cut truck production several times in the last year. Ford has confirmed this week that it will be forced again to trim production. cut production of its Super Duty pickups and large SUVsDue to semiconductor shortages.

There is an effort underway to improve the production of chips across the globe and in the United States. Chipmakers such as Intel and TSMC started. building new semiconductor plants in the U.S.Last year.

Some automakers won’t be patient. Ford announced in November that it will be partner with chip supplier GlobalFoundriesTo increase its access chips. General Motors has begun working with several chip makersNew designs will reduce the use of chip in its future vehicles.

New factories will soon start operating, so supply of automotive semiconductors could increase later in the year. This should reduce the demand for new cars and ease the shortage of new vehicles.

However, Russia’s invasion in Ukraine could increase the shortage of chips in the short term. Both countries are significant suppliers of neon gas and palladiumTwo commodities that are essential to the manufacturing of chip products:

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