The record-breaking rise in used-car prices is showing signs of coming to an end.
The bellwether of the industry — the wholesale market where dealers buy and sell in bulk — already has topped out, and prices of individual secondhand cars should follow in a matter of weeks, said Zo Rahim, industry analyst at Cox Automotive. Cox owns Manheim, the huge U.S. auction house that sells millions of vehicles a year.
Prices have been soaring. The cost of used cars and trucks climbed 10% in April, and another 7.3% in May, when they were responsible for one-third of the overall rise in consumer prices.
All kinds of pandemic-driven shifts in supply and demand contributed to the run-up. But most of those no longer are an issue.
"Wholesale prices as of right now are at their peak and should start to come down," Rahim said.
Prices for individual vehicles typically track the wholesale market, but with a lag, he said. That likely means "a few more weeks of retail prices increasing, before they start to follow suit."
Manheim's wholesale index of used-vehicle value was 36% higher than a year earlier as of mid-June, down from an annual rate above 50% in April. One effect of higher prices has been to push the average age of vehicles on U.S. roads up to a record 12.1 years.
The jump in used-car prices has had a variety of causes. Some are unique to the auto industry, while others are playing out across the economy. Some result from pandemic trends that are fading, but others are from shifts in behavior that could take longer to return to pre-COVID norms — if they ever do.
Following is an overview of some of them:
• Demand conditions are unusual.
U.S. household incomes actually rose on aggregate during the pandemic, as government aid and expanded benefits more than offset lost wages. And because lockdowns limited spending opportunities, much more of the money got stashed away than usual.
"Consumers are sitting on savings that they have accumulated over the last 12 months, and are leveraging that money to buy durable goods such as cars," Rahim said.
• And so is supply.
Auto factories all over the world shut down at the worst points of the pandemic. As they tried to crank production back up, a new problem emerged: shortages of semiconductors, key components for in-car touch screens and other functions like power steering. Global output of new vehicles in the first quarter was down more than 2 million units from 2019. That's had a knock-on impact on the used-car market. With a squeeze on the availability of new vehicles, many buyers turned to secondhand ones instead.
• Businesses changed their behavior.
Among those buyers, rental companies played a key role. They usually replenish their fleets with new cars. But this year, after selling hundreds of thousands of cars early in the pandemic as travel demand slumped, they've been turning to secondhand ones.
Companies like Hertz Global Holdings Inc. and Enterprise Holdings Inc. say they've been expanding their fleets by buying used cars where they can find suitable ones — contributing to the surge in demand, where they'd normally be adding to supply by selling their older vehicles.
• And so did consumers.
As well as having more savings to spend on buying a car, many Americans also have soured on other kinds of transportation during the pandemic — making cars even more essential to millions of families. All forms of travel were sharply curtailed in the first months of the pandemic, but car usage never declined as much as planes or public transit, and it's come much closer to regaining pre-COVID levels.