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Used car prices drop: after months of rise

Since the shortage of semiconductor chips has led to historically low inventories on dealer lots, the used automobile industry has been booming in 2021. Because of this, prices have continued to skyrocket, setting new all-time highs each month. There are no signs that this will change soon, at least until the chip supply situation improves. However, according to Cox Automotive's latest data, sales of used cars fell considerably in July compared to the same month in 2020.

A seasonally adjusted annual rate (SAAR) of sales of 44.8 million vehicles fell to 36.9 million over the July 2020 to July 2021 period, a drop of 18%. As a result, the overall number of used cars sold fell from 3.2 million in June to 3.1 million in July, down from the previous month's figure of 39 million. Even retail sales have decreased, from 1.8 million to 1.7 million in June and July of last year (from 2 million).

Used car availability has improved marginally in recent months, but asking prices have remained stable or risen slightly. According to a research from Ford Authority published last week, the average used car list price hit a record high of $25,500 in July, which appears to be impacting sales. Other considerations come into play, such as the fact that more and more lessees are choosing to buy their automobiles rather than return them at the conclusion of the lease term.

There was only a 2.2 percent increase in July on Cars.com from June 2021's $23,166 median used-car price.

Demand for secondhand automobiles and the global microprocessor scarcity have kept prices high, but they aren't increasing as quickly as they used to.

There was only a 2.2 percent increase in July on Cars.com's median price for a used automobile compared to that of June 2021 ($23,166). Mays told MarketWatch that the increase is "much smaller" than the 9.1% jump expected between June and May of 2021. We caution, however, that used autos are still pricey.

According to Goldman Sachs' senior U.S. economist David Mericle, people will no longer pay the same price for used cars as they do for new cars "indefinitely."

He predicted that the price of secondhand cars would drop once new car manufacture resumes. July saw new automobile prices rise by a greater proportion than used car prices for the first time in five months (1.5 percent vs. 0.25 percent).

The cost of renting a risk decreases.

During the first 15 days of September, rental risk auction prices increased by 29.6% on a year-over-year basis. Rental risk prices increased by 6% from August to September. Compared to a year ago, rental risk units' average mileage in the first half of September (at 58,994 miles) was up 39%, but down 16% month-over-month.

The performance of auto loans has dipped from previously high levels.

Declining unemployment benefits and tighter loan terms led to an increase in seriously delinquent auto loans, resulting in a decline in August's auto loan performance. At the end of July, Equifax estimated that 1.4% of auto loans were in accommodation, down from 1.5% four weeks prior. Approximately 519,000 vehicle loans had frozen statuses in August, compared to the level of accommodation prior to the epidemic.

which shielded them from the elements. Despite the frozen loans, 60-day delinquencies rose for the third month in a row in August, albeit they were down 1.8% year over year. Delinquencies rose from July's 1.15 percent to 1.20 percent in August, marking the highest five-month total for delinquencies. The serious delinquency rate was one basis point lower than it was a year earlier.

According to the Federal Reserve, 4.53 percent of subprime loans were seriously late in August, up from 4.36 percent in July. The subprime severe-delinquency rate was 18 basis points greater than it was a year earlier. Defaults on student loans climbed in August, rising by 1.9% year over year.

According to reports from throughout the world, the economic upheaval that has followed the Corona pandemic and is rapidly spreading over the world has resulted in a reduction in car prices. Because of the decline in demand for cars, used car prices could drop by almost 15%, which would be greater than the reduction in prices experienced during the last recession a decade ago.

Automobile demand is expected to be weaker than it was during the 2008-2009 financial crisis.

"While visibility is restricted in the current exceptional climate, most economists foresee a substantially greater shock to auto demand than in 2008/2009," JPMorgan's Ryan Brinkman, an auto analyst, said. This shows a decrease in the cost of automobiles. Prices will fall significantly faster and by a greater margin if they're second-hand, as opposed to brand-new products.

Due to the current economic downturn, car rental companies will be forced to dispose of their inventory.

JPMorgan predicted that a glut of used automobiles for sale from its rental fleets would contribute to the precipitous decline in prices. Thousands of rental automobiles are sitting idle right now because to people choosing to stay at home instead of renting a car.

Auto sales might plummet by 80% in the worst-case scenario, according to industry experts.

There is no idea who will buy despite the low prices since dealers have no idea who will buy. According to JD Power, new automobile sales in the United Kingdom will decline by 65% in April. He warned that in the worst-case scenario, revenues may fall by as much as 80%. According to predictions, the rate will have risen by nearly 8% from the previous year by July.

People tend to prefer keeping existing cars rather than shopping for a new or used one, which makes sense given the current status of the market. A decrease in used car prices may be on the way, but some experts believe it won't happen until the supply of semiconductors improves.

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