Cars for Cash Empire – How the Vehicle Market Shortage Can Put Cash in your Pocket
In the “old” days, (AKA 2019,) selling your used car was a great way to get a good down payment on purchasing your new car. Now in 2021 the amount of new cars on the market and cars in general are so scarce as a result of the pandemic, that in some cases people are selling their used car for a PROFIT!
The car market is facing a horrific inventory shortage ever since manufacturing plants shut down last March due to Covid-19, and it’s forcing dealers’ hands to pay more for trade-ins so that buyers have something to drive off the lot. Consumers looking to get rid of their current vehicles can get up to thousands of dollars more than usual depending on the market and the scarcity of vehicles. But like the current spike in the housing market, if you are also looking to replace what you are selling with a new vehicle, you’ll be looking at a bigger out-of-pocket expenses as new vehicles are hard to get due to a silicon chip shortage.
In the past and just as recent as 2 years ago, used cars had relatively lower trade in values; dealerships had a lot of inventory to sell and they were generally “doing you a favor” by buying your used car. They would make necessary repairs and flip it around for a small profit leaving you with a pretty low price per trade value. Fast forward to today, the average list price for the used car market values are up 12% from a year earlier and 14% from 2019 at an average value of $23,000.
Another factor to the shortage is rental cars; Rental car companies are usually steady contributors to the used-car market nationwide. With their need to refresh their rentals with new vehicles every 12 to 18 months, they sell their older vehicles on the used market and people take advantage of the opportunity as they are usually well maintained regardless of the amount of miles they have. However, when the rental car business abruptly stopped last year, many rental companies stopped buying new cars while also quickly unloading huge portions of their existing fleets to help offset the monetary loss from a dry market. This has meant fewer used rental cars hitting the market this year and has made a big contribution to the used car crisis.
In the past 6 months companies have made records profits from the used car market. AutoNation for example doubled its profits in the last quarter from $175 million dollars to $362 million in just 3 months! “This is a result of the pandemic and then the chip shortage,” Mike Jackson, AutoNation’s chief executive, said. “There’s not enough supply to meet demand. Vehicles come in and they go out right away.” But even AutoNation’s time may be coming to an end. In 2019 they reported having roughly 56,000 vehicles at a time on all of their lots; now they have a hard time keeping more than 5000 in stock. An estimated 60 percent of the vehicles that AutoNation ordered from manufacturers were earmarked as sold before they even ever arrived at its local dealer locations. That is a total 180 degrees from the past, when cars sometimes sat unsold on lots for six months or more.
Dealer inventories are likely to remain tight well into 2022 even if the chip shortage subsides. There’s tremendous pent-up demand and it will take time before the manufacturers can build up dealer inventory again; so, for now we wait.