Various factors involved in the trend are slowing one being a return to normality after the pandemic.
Costs for used cars rose 10% in April and another 7.3% in May.
The situation has come about because of many pandemic-driven shifts in supply and demand. Consumers, as we walk away from the pandemic, have money to spend. The ongoing global chip shortage has reduced new car inventories which, in turn, has built-up demand for pre-owned vehicles thus a spike in value.
During the height of the pandemic last year, many automakers idled production lines. Right around this time, numerous rental companies sold hundreds of thousands of their cars. As automakers relaunched production, they came face to face with the chip shortage, limiting their capacity to build new cars. These same rental companies, looking to renew their fleets, dipped into used cars which created the bubble.
But this trend is slowing so far this month. As reported by Bloomberg (subscription required): “Wholesale prices as of right now are at their peak and should start to come down,” Zo Rahim, industry analyst at Cox Automotive said. “We are seeing a decelerating pace of price increases in the first two weeks of June, compared to what has been just an absolute surge.”
Many car dealers expect demand for cars to remain strong so high prices may remain for a while yet. Fed Chair Jerome Powell, in a House hearing on Tuesday, made a cautionary statement about the situation: “These effects have been larger than we expected and they may turn out to be more persistent than we expected.”
