- Combined pressures during the pandemic saw limited new car availability push used car prices to record highs.
- Some analysts believe the used car market peaked at the end of 2021 and that as more new cars become more readily available, those historic prices will fall.
- TrueCar collects new and used car data from over 15,000 dealerships to compile their insights and help buyers make car-buying decisions.
Record inflation. Supply chain issues and shortages of critical parts and computer chips. And in almost unheard of fashion, some used cars are selling for more than new cars.
It hasn’t been an easy start to 2022 for the auto industry, but there are reasons to be bullish the retail market will turn around by year’s end, or sooner.
“All of our data shows us that we’ve we found the bottom at the end of Q4 (in 2021), and we think the first half of 2022 will be a gradual build—inventory will slowly start building,” Mike Darrow, president and CEO of TrueCar, told Autoweek prior to last week’s opening of the 115th Chicago Auto Show.
“Now you’re going to get the demand of the spring market, so any extra supply is going to get swallowed up pretty quickly,” Darrow said.
Based in Santa Monica, California, TrueCar is an automotive pricing and information website for new and used car buyers. Darrow, who assumed his role with the company in 2019, said many of the issues hampering the industry are already moving to the rearview mirror.
TrueCar collects data from over 15,000 dealers to allow users to see what other car buyers are paying for vehicles in their local area and then receive upfront prices for any purchases they are considering. It collects information from both new and used car sales.
Two years of US vehicle sales negatively impacted by a pandemic and parts shortages have created significant pent-up demand.
“There’s a demand bubble that’s created because consumers are coming back to the marketplace in record numbers, and they’re not finding the vehicle they’re looking for,” Darrow said. “I think when some of these short-term macro issues are solved, that the demand will be there very, very quickly. People will be ready to buy.”
The chip shortage was triggered when automakers shut down vehicle production as the pandemic reached American shores in March 2020. When automakers stepped out of line temporarily for ordering chips—the brains behind modern vehicles—that capacity was gobbled up quickly by producers of consumer electronics, such as Apple and Microsoft.
“The OEMs went to the back of the line for chips,” Darrow said. “When they wanted to come back, the supply wasn’t there.”
The shortage of new cars triggered an explosion in used car sales, with prices increasing more than 50% in some cases, even with high mileage and certain wear and tear.
While Darrow sees the new car market coming back strongly by the end of this year, he also sees the used car market remaining strong, perhaps longer than it will take for the new car market to fully rebound.
“For new car shoppers, about 20% of the people who come to our site looking for a new car end up buying a used car and they’re buying CPO (certified pre-owned) models,” he said. “They’re buying current models, low-mile models, so we think the used car market will continue to service those folks for an extended period of time.”
As a result, used car prices should remain high until new car sales ramp up significantly. “When new cars come back to the market, their (MSRP) prices will come down,” Darrow said. He expects used car prices will then follow suit, likely in the second half of this year.
Car shoppers at the Chicago show can hone their consideration list, then visit TrueCar to calculate a monthly payment and get a value for a trade-in vehicle. In Florida, the company is testing a full end-to-end digital solution called TrueCar Plus.
Big changes are in store for both manufacturing and automotive retailing as battery-electrics and hybrids grow in popularity and as technology advances with driver-assistance technologies that inch toward autonomous driving.
The impact on brick-and-mortar car dealerships cannot be overestimated. Some dealerships may fall by the wayside rather than adapt, but Darrow remains optimistic about the future of dealers and shoppers who will find them valuable, particularly for vehicle service, closing sales, and perhaps EV charging.
“Many people still want to go into a dealership,” he said. “They want to touch the car—they want to sit in it, drive it. So we see dealers playing a major role. They’ll have digital processes that consumers can use, but I think they’ll also support their brick-and-mortar model as it goes forward.”
Share your thoughts on what you think the new and used car markets will look like over the next year in the comments below.
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