Consumers’ nonstop demand for used vehicles will not slow come springtime despite high retail prices and dealership lots with a paltry selection of later-year models.
Last spring, stimulus checks and income tax refunds landed in would-be car-buyers’ bank accounts almost simultaneously. As a result, demand for used vehicles increased. And while there won’t be broad stimulus payments this spring, slim new-vehicle availability and income tax refunds will prolong similar demand for used vehicles.
Used-vehicle spending likely will get a boost in March, April and May, possibly kicking off Presidents’ Day weekend, dealer Kristin Dillard told Automotive News. She doesn’t think consumers will be dissuaded by inflated sticker prices; used vehicles are selling for a lot of money, she said.
“We expect used-vehicle prices to remain high,” said Dillard, president of Team Auto Group, which has six stores in North Carolina.
People returning to work and pulling in more wages could compel them to buy used vehicles, said Jason Binder, corporate operations director of Len Stoler Automotive Group, which has 11 stores in Maryland and New York. Consumers are more cautious this year because the pool of available vehicles is low and used-vehicle prices are high. But Binder believes most are still willing to pay for what they need.
“Our feeling is that this will carry on through spring,” he said. “We’re projecting that the market conditions, as they are now, are going to be like that at least till the end of the third quarter, fourth quarter.”
Dealers looking to fortify their lots ahead of the spring selling season face a one-two punch of inventory scarcity and hefty used-vehicle prices at wholesale.
On one hand, those wholesale values are stabilizing compared with 2021. They could return to pre-pandemic seasonal patterns “with the usual uptick during tax season in the spring, and a gradual softening the rest of the year,” according to Tom Kontos, chief economist at KAR Global, parent of auction giant ADESA.
On the other, used-vehicle prices could still somewhat fluctuate in the first and second quarters and offer little reprieve, said David Paris, senior manager of market insights at J.D Power. Dealers fighting over vehicles in the wholesale marketplace ahead of the spring selling season could help bolster prices, too, he said.
“Are they going to go up significantly from where they’re at right now? That’s still something that’s to be seen,” Paris said.
Consumers flush with extra cash may walk into dealerships this spring in hopes of putting a down payment on a new car. But new-vehicle options are already limited because of supply constraints, and now their next-best choice — a clean, late-model used car — is scarcer.
Rental companies haven’t been able to acquire new inventory and consumers have been buying out their leases because of favorable equity, which has snowballed into a lack of 1- to 2-year-old used vehicles flowing back into wholesale channels and dealership lots, Paris said.
Whenever new-vehicle production gets back into full swing, that will help drive a future used-vehicle pricing reprieve, Paris said. But that won’t happen till the tail end of the third quarter at the earliest, he said.
There are a few key differences between the upcoming and past spring selling seasons that dealers can capitalize on. For instance, car loan amounts could be higher by year’s end if the Federal Reserve changes its interest rate policies. That could spur hesitant customers to buy early, said Charlie Chesbrough, a senior economist for Cox Automotive.
Gasoline prices are elevated across the nation, so dealers might also consider persuading consumers to invest their money in a vehicle with better fuel efficiency, Chesbrough said.
“When someone says, ‘My monthly payment is going to be too much,’ you can also make the case, ‘Well, you’re going to save $50 a month on your fuel costs because you’re going to get more fuel economy,’ ” Chesbrough said.
In the past two years, consumers have started to arrive at dealerships knowing exactly what type of vehicle they want, not simply looking out of boredom or curiosity, said Tom Castriota, owner of Castriota Chevrolet in Hudson, Fla. He expects that to continue this spring.
“They say, ‘I need an SUV that could carry six people’ or ‘I need a truck that could tow X pounds,’ ” Castriota said. “We just don’t see the person come in and say, ‘Oh, show me what you have in a used pickup truck.’ ”
As consumers begin spending their tax refunds on used vehicles, dealers’ days’ supply could potentially decline, said Dale Pollak, executive vice president of Cox Automotive.
Castriota said his store’s days’ supply might not rapidly shrink in the spring because his dealership caters to a community of mostly retirees. But when General Motors’ new-vehicle production grows, that will help drive trade-ins at his store and put used models back in the pipeline, he said.
Binder said he doesn’t expect a large dip in used-vehicle days’ supply at Len Stoler Automotive Group this spring.
“We’re obviously running very lean on the new-car side with day supply,” Binder said. “On the used-car side, we prepare for it. We plan. We’re buying cars now.”
Dillard, at Team Auto Group, said her group will keep getting inventory from a variety of sources — auction sites, the service drive, customer databases and off the street. She “totally” expects wholesale used-vehicle prices to remain high.
Team Auto Group marketing will stay completely digital and data-driven in the coming months, Dillard said. The group is only going after buyers they know to be in the market to purchase a vehicle.
“We still want to be incredibly supportive of the manufacturer,” she said, “but there’s just not a need to advertise as heavily on new cars now, so we put more of an emphasis on our used cars until the inventory improves.”