According to an executive from one of America’s top auto retailers, the scorching used car market shows signs of slowing down.
On Friday’s CNBC’s “Worldwide Exchange”, Jeff Dyke, president and CEO of Sonic Automotive said that new car inventories would improve over the coming months. It will help to reduce the inventory problems that are occurring on the pre-owned side.
According to Edmunds data, the average transaction price of a used car in the second quarter 2021 was $25,410. This is an increase from $22,977 the first quarter and 21% over the previous year. Edmunds’ highest-ever average price for a used vehicle over a quarter is this figure.
Dyke said that there are signs the market is stabilizing. Prices dropped as high as $2,000 on a used car in July, as new cars are starting to come on the market.
“Right now we have an eight-to nine-day supply on the ground of new cars. Dyke stated that if you consider our BMW brand, which we have 15 stores, we’ll have a 25 to 30-day supply. This will allow us to begin regenerating preowned inventory for all dealers and help with the pricing. We have never before seen an inversion where wholesale prices are higher than retail prices. But that’s coming to an end.
New car buyers will be more likely to sell their vehicle to dealers and retailers due to the increased value of trade-in options. Edmunds reports that the average trade-in value for a used vehicle was $21,224 in June, an increase of 75.6% over the previous year.
Edmunds reports that the average cost for a new car was $40,827 in the second quarter, up from $40,000.70 in the first quarter. This is a 5% increase over the previous year.
The shortage of semiconductor chips has caused a slowdown in new car production. This problem is still lingering.
General Motors stopped most of its U.S.- and Mexican full-size pickup trucks, including the Chevrolet Silverado (and the GMC Sierra) production last week. According to the company, production is expected to resume next week.
Ford also saw a reduction in North American vehicle production from July to August, due to a lack of chips. This affected vehicles such as the Ford F-150 and Bronco Sport, as well as Explorer. According to the company’s earnings, supplies of critical parts are improving. However, it lost 700,000 vehicles in the second quarter. Ford had predicted that the semiconductor shortage would have an adverse impact of $2.5 billion in April. However, it did not provide any update on last week’s report.
Dyke stated that he expects the chip shortage to “alleviate” in the next months, but companies such as Sonic Automotive who sell used cars have found the tight supply to be a benefit.
Sonic Automotive’s second quarter ended June 30 saw $3.4 billion in revenue, an increase of 58.7% over the previous year and a quarterly record. Particularly, the revenue from used vehicles increased 56.6% year over year.
EchoPark Automotive, which sells pre-owned cars, set a new quarterly record with $595.6million in revenue. This is an increase of 88.9% over the previous year. Retail sales volume increased by 68.9% over the previous year.
Sonic Automotive announced that it will be conducting a strategic review on EchoPark. This is due to the success of the division, as well as confidence in the runway for expansion. Sonic Automotive said that it is exploring all options, including the possibility of spinning off the division as a public company.
In recent years, several other used-car chains went public including Vroom in 2020 and Carvana in 2017.
CarMax, America’s largest used car dealer, saw its revenue rise 138.4% year over year to $7.7 Billion in its 2022 fiscal 1 quarter. The quarter saw the company sell 452,188 units via its wholesale and retail channels, an increase of 128% over the previous year.