Sellers Earn Profit on Used Cars With Broken Engines, Frames

  • A lack of supply of new vehicles pushed used-car prices to record highs in May.
  • The CEO of an online marketplace told Forbes he was paying a premium price for damaged cars.
  • “We’re making money on these because auction pricing is so intense and high,” he said.
  • See more stories on Insider’s business page.

It’s no secret that the used-car market has been bonkers lately, but demand has gotten so strong and supply so tight that one dealer said he was buying cars he previously never would have considered.

“We’ve been seeing things clear at 103%, 110% to MMR (Manheim Market Report)— cars that we bring in we would never sell that are damaged, like frame damage or need massive engine rebuild,” Toby Russell, a co-CEO of the used-vehicle marketplace Shift, said in an interview with Forbes published Tuesday.

“Normally we would lose a little money on that, but we’re making money on these because auction pricing is so intense and high,” he said. “It’s just a total dislocation in the market caused by a surge in demand and lack of supply coming from new cars.”

Russell told Forbes that Shift was paying 25% more for vehicles than it did at the start of the year.

“That’s like crazy,” he said. “Usually used cars will depreciate 1% per week but the car sitting in your driveway is likely to be worth 25-30% more than it was in January.”

At the start of May, used-vehicle prices reached an all-time high, topping more than $22,500, a Cox Automotive analysis of vAuto Available Inventory data found.

“Given the strong demand from consumers, and the tight supply situation, it seems likely that used-vehicle prices, already at all-time highs, will continue to rise,” said Charlie Chesbrough, a senior economist at Cox Automotive. “At some point, prices will become too high, and demand will recede. But we are not there yet.”

Cox found that the supply of used vehicles on dealers’ lots would last less than half as long as it would have in May 2020 (though fewer people were buying cars then). The days’ supply was also well below the same month in 2019 — a normal year.

Chesbrough said there was a simple reason for the sales slowdown from the frenetic pace earlier in the spring: “Folks can’t buy what isn’t there.”

Jonathan Banks, a vice president of valuations services at J.D. Power, said used-car retail prices were up 15% this year and unlikely to back down.

“Used-vehicle prices have shown no signs of softening and are expected to remain exceptionally strong for the foreseeable future,” he said.

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