Hot used vehicle market boosts aftermarket: Report
“Used vehicle demand in the U.S. has risen to unprecedented levels. The surge in remote working, a low supply of used vehicles, and new vehicle production (and sales) hampered by a shortage of computer chips have combined to push used car and light truck prices to record heights during the first-half of 2021.
“Rocketing sales and record-high used-vehicle prices are positive for the aftermarket since they raise 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.”
— Jim Lang, publisher, Lang Aftermarket iReport
High Demand & Low Supply
COVID-19 has caused remote working to climb exponentially, which has ignited 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.
With high demand and low supply, used-vehicle prices have gone through the roof. Double-digit price increases hit the market during in the first half of 2021.
In June, the price of used vehicles averaged a record level, topping $24,400. This is a 10% price surge over the previous mouth and 25% 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
With the unprecedented demand for used cars and light trucks, 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
Soaring 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.
The synergistic relationship between rising used-vehicle prices, lower scrappage, higher vehicle average age, and the growing number of older cars and light trucks on U.S. roads creates an algorithm that is positive for aftermarket growth.
Six Major Takeaways
- Used-vehicle demand is at an all-time high and prices have set new records during the first-half of 2021, surging 10% between May and June alone and up 25% from 2020.
- The factors underlining the strong demand for mobility will remain in place for some time and help to reinforce consumers’ demand for used vehicles.
- Many Dealers make greater profits selling used vehicles than by selling new cars and light trucks. This is particularly true with the record-high used-vehicle prices and the shortage of new vehicles created by the worldwide computer chip shortage.
- Record-high used-vehicle prices are positive for the aftermarket since they increase the value threshold at which vehicles are scrapped and help to keep older vehicles on the road, which use more aftermarket product per mile than newer cars and light trucks.
- Higher used-vehicle prices encourage consumers to invest in the repair and maintenance of older cars and light trucks, which boosts aftermarket volume.
- The synergism between higher used-vehicle prices, lower scrappage, increasing vehicle average age, and the growing population of older vehicles in operation creates an algorithm positive for aftermarket growth.
Copyright 2021 by Lang Marketing Resources, Inc.
NOTE: Special thanks to publisher Jim Lang for granting us permission to publish the Lang Aftermarket iReport.