High sales numbers and prices for used vehicles are raising the value threshold at which cars and light trucks are scrapped
Fort Wayne, Ind.—Record-high used vehicle prices and sales have become a positive for the aftermarket, as used vehicle demand has risen to unprecedented levels. The confluence of remote working and the computer chip shortage has pushed used car and light truck prices to record heights during the first-half of 2021.
The demand is raising the value threshold at which cars and light trucks are scrapped (positive for VIO growth), increase the age of vehicles in operation, and encourage customers to invest in repairing their vehicles, according to Jim Lang in the recently released “2022 Lang Aftermarket Annual” report.
The following are a few highlights from the report’s findings:
High Demand and Low Supply
COVID-19 has caused remote working to climb exponentially, which has fueled the demand for used vehicles. While the demand for used cars and light trucks has surged, their supply has failed to keep pace.
Car rental companies, which have been hit hard by COVID-19, have reduced their new vehicle purchases since March 2020. As a result, the flow of used vehicles to the marketplace from rental companies is at historic lows. Typically, car rental companies have supplied upwards to two million used cars and light trucks annually.
At the same time, new vehicle production has been curtailed by a lack of semiconductors.
In June, the price of used vehicles averaged a record level, topping $24,400. This is a 10-percent price increase over the previous month and 25-percent higher than in 2020.
Used Light Trucks Are Hot
While passenger cars generally have the lowest prices in the used-vehicle market, they are hard to find and the fastest to sell. The recovering U.S. economy is forcing higher prices for used pickups and other work-related light trucks.
The 2008 Great Recession slashed new vehicle sales, which has caused a shortage today in older, low-priced vehicles, especially light trucks.
Dealer Profits and Bay Sales
Many dealers can make greater profits on used vehicles (particularly CPO vehicles) than by selling new models. This is increasing dealer bay volume as they make used vehicles ready for resale.
At the same time, the shortage of new vehicles is forcing many dealers to focus more than ever on the used vehicle market.
VIO Growth and Rising Vehicle Age
High used car and light truck prices have increased the value threshold at which cars and light trucks are scrapped. This helps to reduce vehicle scrappage rates and boost the number of vehicles in operation (VIO). Both factors are ratcheting up the average age of vehicles on the road.
The greater life expectancy of vehicles is also increasing the number of cars and light trucks in older age categories.
Boost to Repair and Maintenance
Lower new vehicle production (the result of a worldwide chip shortage) along with higher used-vehicle prices are changing consumer attitudes toward retaining and repairing their older cars and light trucks.
Maintaining vehicles helps to keep them on the road longer and creates greater aftermarket product volume per mile travelled, since older vehicles consume more aftermarket products per mile than new cars and light trucks.