The wholesale price of used cars in the United States in February was lower than in January, which means that although prices are still close to historical highs, the surge in used car prices in the United States may be being alleviated.
Cox Automotive said Monday that its Manheim used car value index fell 2.1 percent in February from January. On average, though, the price of used cars remains at historic highs. The index is down from its all-time high in January, but is still up 36.7 percent from a year ago.
Disruptions in the supply chain associated with COVID-19, particularly the continued global shortage of various semiconductor chips used in cars, trucks and SUVs, have forced automakers to limit the production of new vehicles. This, in turn, triggered a surge in demand for used cars last year, as well as an increase in used car prices.
While almost all used cars are more expensive than they were a year ago, the impact of price increases on different categories of used cars is not the same. According to Cox Automotive, while the price of small family cars and vans rose by 44.9 percent and 48.4 percent, respectively, in February from a year ago, the price of used pickup trucks rose by only 24.8 percent.
The difference in gains between trucks and small family cars reflects the state of new car inventories. These include Ford Motor Co., Ltd. (F.US), General Motors (GM. US) and Chrysler parent company Stellantis (STLA. automakers, including US), are prioritizing the production of high-margin, high-volume pickup trucks in the face of chip shortages over smaller, less profitable family models. This means that consumers looking to buy a new small family car or SUV are more likely to be unlucky and more likely to look for a similar model in the second-hand market than those who buy a truck.
However, even the production of pickup trucks has not been spared. Over the past year, Detroit's three automakers have sometimes had to cut truck production, and that's not the end of it. Ford confirmed last week that the company was once again forced to cut production of its Super Duty pickups and large SUVs due to semiconductor shortages.
Efforts are currently underway in the U.S. and around the world to increase chip production, including Intel (INTC. US) and TSMC (TSM. Chipmakers, including the US), began building new semiconductor factories in the U.S. last year.
Some automakers aren't waiting. Ford motor said in November 2021 it would work with chip supplier GlobalFoundries to increase its access to chips. GM has already begun working with several chipmakers on new designs that will significantly reduce the number of chips used in its future vehicles.
As the new plant begins operations, the supply of automotive semiconductors should begin to improve later this year. This, in turn, should alleviate the shortage of new cars and reduce the demand for used cars. However, Russia's invasion of Ukraine could exacerbate chip shortages in the short term. These two countries are important suppliers of neon and palladium, and these two commodities are crucial for chip manufacturing.