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Used-car costs are nonetheless sky-high, however they might be easing

A pedestrian walks previous an authorized pre-owned automobile gross sales lot in Alhambra, California on January 12, 2022.

Frederic J. Brown | AFP | Getty Pictures

Wholesale used-vehicle costs fell in February from January, an indication that whereas costs stay close to report ranges, the surge in U.S. used-car costs could also be easing.

Cox Automotive mentioned on Monday that its Manheim Used Vehicle Value Index, which tracks costs of used automobiles bought at Manheim’s U.S. wholesale auctions, declined 2.1% in February from January.

Nonetheless, on common, used automobiles are traditionally costly. The index is down from its report excessive in January, nevertheless it’s nonetheless up 36.7% from a 12 months in the past.

Covid-related supply-chain disruptions – specifically, an ongoing world scarcity of the sorts of semiconductor chips utilized in automobiles, vehicles and SUVs – have pressured automakers to restrict their manufacturing of latest automobiles. That in flip has triggered a surge in used-vehicle demand, and in used-vehicle costs, during the last 12 months.

Whereas practically all used automobiles are costlier than they have been a 12 months in the past, the will increase have not hit all classes of used automobiles equally. Cox’s data shows that whereas costs of compact automobiles and vans have been up 44.9% and 48.4% from a 12 months in the past in February, respectively, costs of used pickups have been up simply 24.8%.

The discrepancy between vehicles and compact automobiles is a mirrored image of the state of new-vehicle inventories. Automakers together with Ford Motor, General Motors, and Chrysler father or mother Stellantis have prioritized manufacturing of their extremely worthwhile (and huge-selling) pickup vehicles over less-profitable compact fashions amid the chip scarcity.  Which means shoppers hoping to purchase a brand new compact automobile or SUV usually tend to be out of luck, and extra more likely to search the same mannequin on the used market, than truck-shoppers.

However even pickup-truck manufacturing hasn’t been immune from disruptions. All three of the Detroit automakers have needed to trim manufacturing of vehicles at occasions during the last 12 months. And it isn’t over: Ford final week confirmed that it has as soon as once more been pressured to cut production of its Super Duty pickups and large SUVs due to semiconductor shortages.

Efforts are underway to spice up manufacturing of chips within the U.S. and world wide. Chipmakers together with Intel and TSMC started building new semiconductor plants in the U.S. final 12 months.

Some automakers aren’t ready. Ford mentioned in November that it’s going to partner with chip supplier GlobalFoundries to extend its entry to chips. Normal Motors has begun working with several chip makers on new designs that can enormously cut back the variety of chips utilized in its future automobiles.

Provides of automotive semiconductors ought to start to enhance later within the 12 months as new factories start working. That in flip ought to ease the new-car scarcity and cut back demand for used automobiles.

However Russia’s invasion of Ukraine could exacerbate the chip scarcity within the close to time period. The international locations are significant suppliers of neon gas and palladium, two commodities important to chip manufacturing.

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