Used-car prices are still sky-high — but they may be easing

Wholesale used-vehicle prices fell in February from January, a sign that while prices remain near record levels, the surge in U.S. used-car prices may be easing.

Cox Automotive said on Monday that its Manheim Used Vehicle Value Index, which tracks prices of used vehicles sold at Manheim’s U.S. wholesale auctions, declined 2.1% in February from January.

Still, on average, used vehicles are historically expensive. The index is down from its record high in January, but it’s still up 36.7% from a year ago.

Covid-related supply-chain disruptions – in particular, an ongoing global shortage of the kinds of semiconductor chips used in cars, trucks and SUVs – have forced automakers to limit their production of new vehicles. That in turn has triggered a surge in used-vehicle demand, and in used-vehicle prices, over the last year.

While nearly all used vehicles are more expensive than they were a year ago, the increases haven’t hit all categories of used vehicles equally. Cox’s data shows that while prices of compact cars and vans were up 44.9% and 48.4% from a year ago in February, respectively, prices of used pickups were up just 24.8%.

The discrepancy between trucks and compact cars is a reflection of the state of new-vehicle inventories. Automakers including Ford Motor, General Motors, and Chrysler parent Stellantis have prioritized production of their highly profitable (and huge-selling) pickup trucks over less-profitable compact models amid the chip shortage.  That means consumers hoping to buy a new compact car or SUV are more likely to be out of luck, and more likely to seek a similar model on the used market, than truck-shoppers.

But even pickup-truck production hasn’t been immune from disruptions. All three of the Detroit automakers have had to trim production of trucks at times over the last year. And it’s not over: Ford last week confirmed that it has once again been forced to cut production of its Super Duty pickups and large SUVs because of semiconductor shortages.

Efforts are underway to boost production of chips in the U.S. and around the world. Chipmakers including Intel and TSMC began building new semiconductor plants in the U.S. last year.

Some automakers aren’t waiting. Ford said in November that it will partner with chip supplier GlobalFoundries to increase its access to chips. General Motors has begun working with several chip makers on new designs that will greatly reduce the number of chips used in its future vehicles.

Supplies of automotive semiconductors should begin to improve later in the year as new factories begin operating. That in turn should ease the new-car shortage and reduce demand for used vehicles.

But Russia’s invasion of Ukraine may exacerbate the chip shortage in the near term. The countries are significant suppliers of neon gas and palladium, two commodities critical to chip manufacturing.