By Ray Birch
LAWRENCEVILLE, Ga.—As the semiconductor shortage drags on and with expectations now that supply won’t return to normal until well into 2022, used car values should once again begin to climb, Black Book is forecasting.
The situation will affect sales of new and used cars, and credit unions and banks should brace for a slowdown in auto lending, the company is cautioning.
As CUToday.info has extensively reported, prices of used vehicles soared in 2020 and into 2021 due to limited supply of new and even used cars, before recently starting to normalize.
However, Black Book said the chip shortage will continue to keep new, and even used supplies down, and prices high.
Laura Wehunt
“The microchip shortage continues and just seems to get worse, with Toyota announcing they're going to cut 40% of global production in September,” explained Laura Wehunt, vice president of automotive valuation at Black Book. “Honda is now releasing news to their dealers that they can expect up to a 40% cut to their new deliveries in September. Before this, it’s really been the domestic automakers that have been hit pretty hard by the chip shortage. Now it's starting to ripple through all the OEMs.”
Wehunt added the resurgence of the COVID-19 Delta variant is also compromising microchip supply, shutting down some chip production factories in Malaysia.
‘Not Helping’
“The resurgence of COVID-19 is not helping us get back to good production levels,” Wehunt said.
Due to the ongoing disruption on the manufacturing of new vehibles, Black Book is forecasting ongoing strength in used vehicle values.
“We were starting to see these values kick back up this past week,” said Wehunt, noting used values had recently begun to tick down after almost a year of price increases.
Wehunt said Black Book’s latest data show SUV prices leading the way on increases.
“We're still seeing full-size trucks declining, but I think that's more of a function of where these prices have been, at such incredibly high levels, that they had to come down,” she said.
Wehunt explained used values were beginning to normalize this year as consumers finally said they had had enough with the inflated used prices.
“Consumers are much more aware now about how high a price they had been paying and are starting to push back,” she said. “People finally have figured out they are paying too much. Consumers are much more well-educated now, as these high used prices have hit the mainstream news.”
‘Dropping Almost Daily’
Alex Yurchenko
Alex Yurchenko, SVP, data science and analytics at Black Book, said inventory of new vehicles on dealer lots is still down.
“For the last six months we have seen new inventory on lots dropping almost daily,” Yurchenko said. “Pre-COVID we had more than three million vehicles on the lots on any typical day, and right now we're under one million. Inventory is low.”
That shortage is finally going to show up on dealers’ and lenders’ balance sheets, said Yurchenko.
“Until June, sales were still strong,” he said. “Dealers were selling everything they had on their lots—they were financing a lot of deals. Now the last three months sales are dropping, and it’s not going to get better with this chip shortage lasting longer, and now extending to all OEMs. Sales will be a bit down for the rest of the year, and that will impact lenders.”
Dealers focus again more heavily on used vehicles, noted Yurchenko.
“Dealers are going to go back to buying used inventory so they get to sell something,” said Yurchenko.
Dealers Being Selective
Until the chip shortage is over, prices on the new vehicles will continue to be high, incentives low, and dealers are going to be more selective on who they lend to—the average credit score of borrowers dealers are giving loans to has been going up, explained Yurchenko.
“They are trying to mitigate risk,” he said.
Yurchenko said Black Book sees the chip shortage continuing into 2022.
“It’s anyone’s guess when this will be over, but I would say it will last until at least the middle of next year,” he said. “I don't see the bottom yet.”
Yurchenko and Wehunt agreed used prices will not return to the record highs seen in 2020.
“Prices will be high, though,” said Yurchenko, pointing to other forces that will keep auto supply low. “The rental car companies are not selling much of their fleets now, and repossessions are still very low.”
Like New, But…
Where used values have really taken off is with vehicles under two years old with low mileage and in great condition, Wehunt said.
“These vehicles, pretty much, have become replacements for new cars in the eyes of many consumers,” she said. “People have been overpaying for these vehicles.”
For those looking for more reasonably prices behicles, Wehunt said values of older cars and trucks have not appreciated as sharply.
“We just saw the values of vehicles in the one-two-year range move into positive territory again, and these are the vehicles people are really over-paying for. Many are selling at prices higher than their new counterparts,” explained Wehunt. “Values of vehicles on the two-to-eight-year-old range are showing small declines.”