The rise in used automobile costs may lastly come to an finish

The scorching used car market is showing signs of slowing, according to an executive at one of the leading auto dealers in the United States

“New vehicle inventories are getting better and better in the next few months towards the end of the year,” said Jeff Dyke, President of Sonic Automotive, on CNBC’s Worldwide Exchange on Friday. “As this happens, it will reduce the amount of inventory problems that arise on the used side.”

The average transaction price for a used car was $ 25,410 in the second quarter of 2021, down from $ 22,977 in the first quarter and 21% year-over-year, according to data from online automotive resource Edmunds. That number marks the highest average price over a quarter for a used car that Edmunds has ever tracked.

However, according to Dyke, there are signs that the market is weakening, with the price of a used car falling as much as $ 2,000 over the course of July as the supply of new cars increases.

“At the moment we have new vehicle stocks on site for around eight to nine days. If you take our brand BMW, with which we have 15 branches, we will have a 25-30 day supply in October and November that will start regenerating used inventory for all dealers and this will help lower prices, “Dyke said.” We have never seen this before where there is an inversion where wholesale prices are really higher than retail prices, but this is all drawing to a close. “

The increased value of trade-in options is likely to encourage new car buyers to offer their current vehicle to dealers and retailers. The average trade-in value of a used car in June was $ 21,224, according to Edmunds, up 75.6% year over year.

By comparison, the average cost of a new car in the second quarter was $ 40,827, down from $ 40,070 in the first quarter and a 5% year-over-year increase, Edmunds said.

Semiconductor scarcity affects the auto industry

A used car dealer opens on 27.

Jim Watson | AFP | Getty Images

The new car inventory has been hampered by the persistent shortage of semiconductor chips, a problem that continues.

Last week, General Motors stopped most of its US and Mexican production of full-size pickup trucks like the Chevrolet Silverado and the GMC Sierra. Production is slated to resume this week, the company said.

Ford also cut its North American vehicle production from July through early August due to a shortage of chips, which affects vehicles like the Ford F-150, Bronco Sport, and Explorer. The company said in its results last week that the supply of the critical parts is improving, but it lost production of about 700,000 vehicles in the second quarter. In April, Ford predicted an approximately $ 2.5 billion negative impact from the semiconductor shortage, which it declined to provide an update when it announced last week.

While Dyke said he expected the chip shortage “to ease here in the coming months,” the scarce auto supply has been beneficial for used-vehicle companies like Sonic Automotive.

Sonic Automotive posted sales of $ 3.4 billion for the second quarter ended June 30, an increase of 58.7% year over year and a new quarterly record for the company. In particular, sales of used vehicles rose by 56.6% year-on-year.

EchoPark Automotive, a division of Sonic Automotive that sells used vehicles, posted $ 595.6 million in retail sales, up 68.9% year over year.

Sonic Automotive announced that it is conducting a strategic review of EchoPark, highlighting the division’s success and confidence in a runway for further expansion. One option could be to spin off the division as a new public company, although Sonic Automotive has announced it is considering a full range of alternatives.

Several other used car chains have gone public in recent years, including Carvana in 2017 and Vroom in 2020.

CarMax, the largest used car dealer in the U.S., posted 452,188 units in the first quarter of 2022, which ended on December 31, through its retail and wholesale channels, up 128% year over year.

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