When it comes to pre-owned vehicles, Detroit News said it well, there is high demand, and few options with the average used price of 1 to 3-year vehicle averaging $41,000 according to CNBC. And, when you combine that trend with soaring gas prices, high mileage vehicles and hybrids/EVs are more in demand than ever before. However, for dealers and their car buyers, there are opportunities.
Record gas prices
In the last two weeks, gas prices hit $4.50 in all 50 states for the first time ever. On average, people are paying $1.31 more per gallon compared to a year ago with no end in sight. In fact, many people are projecting average gas prices of $6.00+ by summertime. While the impact on consumers and dealers is obvious, what isn't as obvious is that the majority of vehicles today are less efficient due to the popularity of SUVs and Trucks.
Consider this. 4 of the top 10 selling vehicles in America now cost $100 or more each time they go to the pump. Check out the graphic below:
Even with rising gas prices, the majority of car dealers are still stuck with the supply being sent to them by manufacturers. Today, only 20% of new vehicles being sent to dealers are considered "cars" with the majority of new vehicles being SUVs and Trucks. This is notable as "cars" are your higher MPG vehicles, and with very little new inventory, many car shoppers are turning to vehicles from the last gas crisis back in 2008. They're used, have high mileage, but deliver an average of 10+ MPG more than today's vehicles.
In fact, recent data from OfferUp has shown us that used vehicles that average 30+ MPG and above are driving the majority of VDP clicks for dealers.
Electric Vehicles are out of range
"And while prices at the pump may send some looking for bigger miles-per-gallon numbers or avoiding the pump altogether with electric vehicles, their options are getting slimmer." In fact, a recent survey showed that 9 out of 10 Americans do not intend to buy an EV for their next vehicle purchase.
Today, EVs only account for 10% of car sales, and that number is expected to grow. However, for many buyers, the price of an EV is now out of reach. Used EV vehicles have increased more than 40% in price since last year. Today, the average cost of a used EV is $52,514. Wow.
Waiting is the new norm
A new car might take two to three months if a dealer already has that vehicle promised to them, said Brett Hedrick, owner, and general manager of Hedrick’s Chevrolet. If someone wanted special features, that car might be produced in three months and take another three months to be delivered.
"If they ordered it today, Tesla doesn’t expect customers to receive a Model S or Model X before 2023, according to Car and Driver." But Hedrick said most consumers understand the situation and now they have to wait. Even the rise well above the $5-a-gallon mark has yet to change anyone’s minds on the cars they ordered months ago.
For dealers, waiting can be problematic. As users shift to online purchases of vehicles, many expect to wait days or weeks, but not months or longer. For today's younger buyers, instant gratification is a key ingredient for high customer satisfaction.
Higher prices are good for dealers
Higher sticker prices haven’t deterred people either. On OfferUp, pre-owned vehicle demand has increased in all pricing segments with the largest increases being seen in the $30,000 or above segment. So, while it is getting more expensive for dealers to acquire inventory they are having success reselling their vehicles at an even higher price.
Inflation and Used Car Prices
At the end of February, the Bureau of Labor Statistics reported in its consumer price index that while new car prices had risen the slowest month-over-month in the past six months and used car prices had actually fallen, prices for both were up 12.4% and 41.2%, respectively, year-over-year. However, for dealers even with these decreases vehicle prices still remain well above rising inflation ensuring that dealers can continue to maximize inventory acquired weeks or months ago.
Hedrick has been bullish on used car buying, which he says is the only part of the business he feels he has any sort of control over. "His son has been going anywhere he can to buy used cars and they’ve been trying to keep 100 to 120 on the lot “and that seems to be going ok,” Hedrick said." (“Car dealers contend with high gas prices on top of supply constraints ...”)
A lot of buyers are opting for used cars because of extended lead times. Since January 2021 car buyers on OfferUp have increased with dealers seeing the same or more clicks across their vehicle inventory.
There are cars available, they just aren’t available in the choices or trim options consumers are used to. People will have to be patient or expand their search choices.
“Everyone goes where the customers are and if customers are demanding compact SUVs or crossovers, that’s where the market is going to be,” said Maas. “If because of gas prices things shift and people want to go back to buying Honda Civics and Corollas and other passenger sedans, then the market will adjust to that. It will take time, but they’ll adjust.”
What's next
For dealers, challenges will remain for the foreseeable future. However, there is light at the end of the tunnel. A key to your success is ensuring your dealership is listing vehicles where buyers are shopping and researching their next purchase.
On sites like OfferUp, or Facebook Marketplace, car buyers have access to hundreds of listings in their local area. And while they want to buy from a local dealership, if you aren't listing your items on these sites, those buyers will look elsewhere. While pulling back on non-traditional advertising may seem like the thing to do, the reality is actually the opposite. In any given month, dealers on OfferUp receive millions of clicks on their inventory and as many as 60% of those clicks turn into leads with managed chat.