Used-car sales surge in bargain-conscious coronavirus economy

Reuters



A worker walks through the vehicles stored in the lots at the Cox Automotive Inc. Manheim Pittsburgh vehicle auctioning location in Cranberry Township, Pa. (AP Photo/Keith Srakocic)

 

NAPERVILLE, Ill. — At the height of the coronavirus pandemic in mid-April, used-car dealer Alex Tovstanovsky had vehicles jammed six rows deep on his lot in the western Chicago suburb of Naperville.

But the seeming oversupply was not a mistake.

Despite plummeting sales at his store, Prestige Motor Works, Tovstanovsky was betting on a recovery, buying dozens of cars in early April as auction prices for used vehicles dropped.

That bet is now paying off. Tovstanovsky can offer cars cheaper than local competitors, and his sales jumped 38% in May versus May 2019.

"This is an election year, and I felt the Trump administration and the Republicans in Congress would do whatever it took to keep the economy strong," Tovstanovsky said.

Rising demand has now pushed used-vehicle prices about 20% higher than when Tovstanovsky made his bet.

"I just wish I'd bought more cars when prices were low," Tovstanovsky said.

As America shut down in March to combat the spread of COVID-19 and its economy tanked, U.S. new-vehicle sales plummeted. Sales were down around 30% in May, an improvement from a 47% drop in April.

But used-vehicle sales have rebounded faster. 

Dealers are now competing to buy vehicles, even as the U.S. economic outlook remains uncertain.

"We actually have an issue now, which is that we don't have enough inventory," said George Arison, co-CEO of online used-car seller Shift. Shift's sales rebounded to pre-COVID-19 levels by late April.

Americans typically become more frugal and favor used cars in uncertain times. Cars remain a vital commodity in a country where getting to work without a vehicle is impossible in all but a few large cities. 

Rising used-car sales increase competition for automakers who must sell new cars to offset cash burned during a two-month shutdown for the North American auto industry.

According to Cox Automotive, new-vehicle sales for the week ending May 28 were down 28%, but sales of used vehicles were up 6%.

According to Cox unit Manheim, wholesale used-vehicle prices rose 5.74% in the first half of May from the previous month.

Carmax Inc, the No. 1 used-car dealer, has already called back about two-thirds of the 15,5000 employees it furloughed in April.

"We expect to come out of this in a position to take advantage of the resiliency of the used-car industry," said chief marketing officer Jim Lyski.

While dealers say access to financing is plentiful, Wells Fargo & Co said this week it will stop offering loans to most independent dealers due to economic uncertainty.

 

'Melting ice cubes'

Used-car dealers say recent customers have ranged from deep subprime borrowers using their $1,200 federal pandemic relief checks for a downpayment, to prime borrowers with pristine credit who saved money working from home since March.

"I've seen a lot of downpayments this month of exactly $1,200," said Scott Allen, owner of Auto Land in Fort Worth, Texas, which sells older used vehicles. After being closed for nearly a month from March 23, Allen's sales in May were up 55% over his average for that month.

The U.S. used-vehicle market has distinct layers. At the top, in terms of price, are vehicles returned after short-term leases that look nearly new. Those are a concern for the industry.

More than 4 million off-lease vehicles are due to return to the market this year, at a rate of around 340,000 per month.

Automakers and their finance arms are trying to slow the pace at which those vehicles hit auctions to avoid flooding the market.

KAR Auction Services Inc has bought 200 acres (0.81 square kilometer) of land and is seeking another 100 acres to store cars for major customers.

Tom Kontos, chief economist at KAR, which alongside Manheim dominates the U.S. used-car auction market, calls these vehicles "melting ice cubes." They lose value every day, and cannot be held back for long.

Franchise new-car dealers are driving demand for used cars to fill lots short of inventory because the coronavirus shut down assembly plants.

Ten of the top 15 models sold at U.S. franchise dealers were used rather than new between May 22 and May 28, according to automotive marketing platform PureCars.

 



More From

  • Ford announces Bronco will be a brand, not just an SUV

    Obviously, it consists of the vehicles themselves, confirmed to be the 2021 Bronco two-door and four-door, plus the Bronco Sport compact crossover. Unlike Ford's current crossovers and SUVs, the "Built Wild" Broncos will have undergone elevated torture tests in the lab, proving ground and real world; come standard with four-wheel drive and a terrain management system; and have the "confidence to go over any type of terrain." Now, to clarify, they will officially be called the "Ford Bronco" and "Ford Bronco Sport," but there will be a Bronco emblem on the front rather than a Blue Oval.

  • Junkyard Gem: 1973 Chevrolet Vega with V8 Swap

    The Chevrolet Vega plot follows a trajectory very similar to that of some other 1960s-1980s GM machines that seemed like serious engineering breakthroughs at first but then caused many headaches for the company, e.g., the Chevrolet Corvair, Chevrolet Citation, and Pontiac Fiero. In the case of the Vega, though, fast depreciation and a rear-wheel-drive platform meant that GM's innovative subcompact made a great recipient for the dime-a-dozen Chevrolet small-block V8 engine. For decades, V8 Vegas could be found all over American roads and screaming down American dragstrips; you'll still find some at the strip these days, but the street version has all but disappeared.

  • Valtteri Bottas wins F1's season-opening Austrian GP

    Valtteri Bottas won a chaotic season-opening Austrian Grand Prix on Sunday while Formula One champion Lewis Hamilton finished fourth after getting a late time penalty. The race was interrupted three times by a safety car and nine of 20 drivers abandoned, including both Red Bulls of Max Verstappen and Alexander Albon — who tried to overtake Hamilton on the outside with 10 laps left, touched wheels and flew off track. “I dodged a few bullets today,” Bottas said after the eighth F1 win of his career.

  • Ford GT/109 Competition Roadster Prototype headed to auction

    Before the Ford GT40 earned its place in the automotive hall of heroes, Ford's Total Performance program had been busy building GT prototypes that suffered numerous failures and the occasional success. From January 1964 to April 1965, the Ford Advanced Vehicles team in Slough, England constructed 12 Competition Prototypes, five of them targa-topped roadsters. Later that same year, the Carroll Shelby-led Ford of France team entered Competition Prototype Roadster GT/109 in Le Mans with Maurice Trintignant and Guy Ligier on driving duty.