The Great Used Car Buyup of 2021

Matt Posky
by Matt Posky
the great used car buyup of 2021

With automakers having a difficult time keeping production schedules thanks to COVID restrictions nuking demand and upending supply chains, 2021 arrived with plenty of problems. Desperate to replenish fleets they had sold off while everyone was locked indoors, rental agencies went on a used car buying spree. But it wasn’t just rental fleets that needed to be restocked, dealerships are also finding themselves with fewer models on the lot than they’re accustomed to — which is a bad position to be in when surveys have revealed consumers are now willing to pay stupidly high prices for automobiles.

They’re reportedly going to great lengths to acquire used cars as the great buyup of 2021 continues.

While the average transaction for a new vehicle now exceeds $40,000 (depending on the source), the going rate for a used one is typically several grand more than it would have been just a few months earlier. Wholesale prices for used cars sold at auction are up 39 percent since the start of 2021 and retail values are up about 20 percent over the same period. It’s quite the steep curve but mimics the general trajectory we’ve seen of consumer goods over the last six months.

According to Automotive News, the situation has encouraged dealerships to get increasingly aggressive in regard to procuring additional vehicles. Some are now scouring private seller havens like Craigslist and Facebook’s marketplace for loose automobiles, with the biggest names (e.g. Carvana) flipping them on the very same channels.

The outlet spoke with Premier Automotive Group’s principal dealer, Troy Duhon, who explained he was issuing sales staff $200 to $400 for acquiring secondhand cars or trucks from private sellers.

“I had one particular salesperson last month buy 10 off the street,” Duhon explained. “And I made over $40,000 on those 10 vehicles.”

His franchise of 24 stores has managed to snag roughly 20 models per location this year, with Duhon claiming it was the smartest thing he’s done in two decades.

From AN:

With wholesale prices climbing to record highs week after week, dealers have become especially innovative in how they land quality used inventory to meet demand and preserve margins — although most have been extraordinarily profitable in this unprecedented market.

The need for inventory has become so acute that it has forced some dealers, such as DeNooyer Automotive Family in Michigan, to make difficult decisions.

Managing Partner Todd DeNooyer said the group has had to prioritize local customers, in many cases requiring out-of-market customers to have a trade-in vehicle in order to buy a car or truck.

“It’s kind of a tough decision to make as a dealer because you always want every sale you can, but you have to take a step back and realize that I want to sell to somebody that’s going to continue to do business with me over time,” DeNooyer said.

Other tactics have included asking existing customers to end their leases early so that vehicles can be placed on the lot for those juicy margins and entertaining a willingness to sell cars carrying more miles than would have previously been profitable. Many dealerships are finding themselves with fewer cars than seems prudent. To remedy this, some are accepting automobiles that aren’t in the kind of shape you might normally think would preclude them from being found anywhere but the sketchiest of stores.

It’s a solution we’ve also seen utilized by rental agencies, especially those that took the worst financial beatings during 2020.

The Manheim Used Vehicle Value Index was up 48 percent (year over year) in May. It was a record and helped by a 3 percent increase in secondhand automotive sales during the period. Meanwhile, retail supplies have remained low (averaging 38 days) while demand continues to climb. Around a quarter of these cars don’t even have time to go through the service department due to public hunger.

J.D. Power has claimed that the slowed growth of wholesale pricing over the last few weeks ending on June 6th could be indicative of some kind of stabilization. But we’ve seen little hard evidence that prices are going to decline anytime soon until inflation is wrangled and new vehicle production normalizes — which requires supply chains (e.g. semiconductor providers) to get their act together. David Paris, J.D. Power’s senior manager of market insights, seems to agree.

“I don’t think personally we’re going to see used prices fall off the face of the planet,” he said. “When they do start to come down, it’s going to be a gradual move downward as new-vehicle production gradually comes back on.”

The only upside is that private sellers can make a small fortune selling their vehicles to a desperate dealership. But that might be a risky play if they don’t have another form of transportation waiting in the wings. Stores are making big money on these cars and the markups are exceptionally steep. It’s kind of like how massive financial institutions are buying up homes for a premium and then turning them around on desperate consumers by jacking up the price or transitioning them into high-end rental properties.

We’re just wondering how long this all lasts. These massive jumps in pricing hardly seem sustainable with the cost of living going up across North America and showrooms cannot continue making money like this forever. Too many people have told us that they’re just going to try and wait out the market and see how frugal they can be in the interim. For those of you who don’t recall, our last giant recession took place shortly after housing prices spiked and fuel costs skyrocketed.

[Image: Gretchen Gunda Enger/Shutterstock]

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  • Dal20402 Dal20402 on Jun 15, 2021

    If only I didn't have two road trips planned this summer it would make a lot of sense to sell my Highlander Hybrid now and buy another big family car later when the market cools down. I'm not going to have this Highlander forever.

  • Ponchoman49 Ponchoman49 on Jun 16, 2021

    It's like 44's cash for clunkers program all over again where a crap ton of good used vehicles were destroyed and taken off the market to get the public to purchase a new more efficient one. That sent used car prices soaring and inventories were decimated. It was so hard to find used cars that weren't grossly overpriced that two of my used car dealer friends had to shutter their dealerships. And for buyers looking for a new vehicle most dealer inventories were very low by that point. It's deja vu all over again but even worse

  • Nrd515 I bought an '88 S10 Blazer with the 4.3. We had it 4 years and put just about 48K on it with a bunch of trips to Nebraska and S. Dakota to see relatives. It had a couple of minor issues when new, a piece of trim fell off the first day, and it had a seriously big oil leak soon after we got it. The amazinly tiny starter failed at about 40K, it was fixed under some sort of secret warranty and we got a new Silverado as a loaner. Other than that, and a couple of tires that blew when I ran over some junk on the road, it was a rock. I hated the dash instrumentation, and being built like a gorilla, it was about an inch and a half too narrow for my giant shoulders, but it drove fine, and was my second most trouble free vehicle ever, only beaten by my '82 K5 Blazer, which had zero issues for nearly 50K miles. We sold the S10 to a friend, who had it over 20 years and over 400,000 miles on the original short block! It had a couple of transmissions, a couple of valve jobs, a rear end rebuild at 300K, was stolen and vandalized twice, cut open like a tin can when a diabetic truck driver passed out(We were all impressed at the lack of rust inside the rear quarters at almost 10 years old, and it just went on and on. Ziebart did a good job on that Blazer. All three of his sons learned to drive in it, and it was only sent to the boneyard when the area above the windshield had rusted to the point it was like taking a shower when it rained. He now has a Jeep that he's put a ton of money into. He says he misses the S10's reliablity a lot these days, the Jeep is in the shop a lot.
  • Jeff S Most densely populated areas have emission testing and removing catalytic converters and altering pollution devices will cause your vehicle to fail emission testing which could effect renewing license plates. In less populated areas where emission testing is not done there would probably not be any legal consequences and the converter could either be removed or gutted both without having to buy specific parts for bypassing emissions. Tampering with emission systems would make it harder to resell a vehicle but if you plan on keeping the vehicle and literally running it till the wheels fall off there is not much that can be done if there is no emission testing. I did have a cat removed on a car long before mandatory emission testing and it did get better mpgs and it ran better. Also had a cat gutted on my S-10 which was close to 20 years old which increased performance and efficiency but that was in a state that did not require emission testing just that reformulated gas be sold during the Summer months. I would probably not do it again because after market converters are not that expensive on older S-10s compared to many of the newer vehicles. On newer vehicles it can effect other systems that are related to the operating and the running of the vehicle. A little harder to defeat pollution devices on newer vehicles with all the systems run by microprocessors but if someone wants to do it they can. This law could be addressing the modified diesels that are made into coal rollers just as much as the gasoline powered vehicles with cats. You probably will still be able to buy equipment that would modify the performance of a vehicles as long as the emission equipment is not altered.
  • ToolGuy I wonder if Vin Diesel requires DEF.(Does he have issues with Sulfur in concentrations above 15ppm?)
  • ToolGuy Presented for discussion: https://xroads.virginia.edu/~Hyper2/thoreau/civil.html
  • Kevin Ford can do what it's always done. Offer buyouts to retirement age employees, and transfers to operating facilities to those who aren't retirement age. Plus, the transition to electric isn't going to be a finger snap one time event. It's going to occur over a few model years. What's a more interesting question is: Where will today's youth find jobs in the auto industry given the lower employment levels?
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