Lang Aftermarket iReport: Higher 2020 used car prices help aftermarket

“Despite the surge in off-lease vehicles during 2020, used car and light truck prices are rising. Used vehicle prices have climbed substantially during the last several months, contrary to the expectations of many analysts at the beginning of the year.

“High used vehicle prices are generally positive for the aftermarket since they raise the value bar at which old cars and light trucks are scrapped, keeping more vehicles on the road. Increasing used vehicle values also make it easier for owners to justify investing in the maintenance of older cars and light trucks.”

— Jim Lang, publisher, Lang Aftermarket iReport

Higher Used Vehicle 2020 Prices

By July, used car prices had risen significantly since the beginning of the year, with light trucks leading the way.

Consumer demand differs by types of used vehicle, and pricing varies accordingly. With light trucks surging in popularity and shortages of some new models due to factory shutdowns, used light trucks (especially pickups) have increased in value the most this year.

Used Vehicle Price Differences

Although some passenger car used prices are relatively soft, higher light truck values are sending overall used prices to near record-high levels.

Used Vehicle Sales Holding Up

Covid-19 has had a much greater impact on new vehicle volume than on the used car and light truck market.

Best estimates place the decline in used vehicles 2020 sales at less than 10%, only a fraction of the decline in new car and light truck volume through the first six months of the year.

Falling Used Vehicle Age

The growing number of off-lease vehicles is lowering the average age of used cars and light trucks sold in 2020 (down below 4.5 years from nearly a 5.0 year average several years earlier).

The average age of used vehicles is also being lowered by the increasing number of “near-new” used cars and light trucks sold by Dealers as Certified Preowned (CPO) vehicles, which generally carry a premium price that reflects their excellent condition and low age.

Used Sales Profits for Dealers

With strong consumer demand for used cars and light trucks, Dealers are finding that they often can make greater profits on used vehicles than they can by selling new vehicles.

The unprecedented information resources provided by the Internet are increasing consumer awareness of the bargains offered by used cars and light trucks (compared to the price of new vehicles). Many webservices also specialize in matching consumer wants with specific used vehicles.

Scrappage at Higher Age

The high prices of used cars and light trucks have increased the value threshold at which vehicles are being scrapped. The greater life expectancy of vehicles is also increasing the value of cars and light trucks in higher age categories.

Lower scrappage can help mitigate the negative impact on the vehicle population caused by the 2020 plunge in new car and light truck sales.

Maintenance Boosted

Surging used vehicle prices are changing consumer perceptions about repairing older cars and light trucks.

Keeping older vehicles in good repair will help to keep them on the road longer, which increases aftermarket product volume, since older vehicles use more aftermarket products per mile driven than younger cars and light trucks.

Dealers Benefit

Dealers are increasingly turning to the used vehicle market to offset the downturn in new car and light truck sales.

Dealers are generating service bay profits by reconditioning used vehicles to make them ready for resale. Dealers are also promoting their service bays among used vehicle buyers for future repair and maintenance.

Six Major Takeaways

• Used vehicle prices are up since the beginning of the year, rising faster than many analysts had predicted.
• Covid-19 has had a much greater impact on new vehicle sales volume than on the used vehicle market.
• Light trucks are leading the used vehicle price surge, with pickups generating the greatest used sales demand and price increases.
• The aftermarket is generally bolstered by higher used vehicle prices, since that increases the value threshold at which vehicles are scrapped, thus keeping older vehicles on the road that use more aftermarket products per mile than newer vehicles.
• Higher used vehicle prices make it easier for consumers to justify investing in the maintenance of older vehicles.
• Many Dealers are turning to used vehicles to increase their aftermarket presence, both by reconditioning the used vehicles which they sell and by cultivating used vehicle buyers as future service bay customers.

Copyright 2020 by Lang Marketing Resources, Inc.

NOTE: Special thanks to publisher Jim Lang for granting us permission to publish the Lang Aftermarket iReport.