With New vehicle inventories waning across the U.S., more shoppers are turning to used cars, leading to record-high auction prices as dealers scramble to replenish their used car inventory.
The wholesale market has made a dramatic reversal from the steep decline in spring. Wholesale liquidity is now a thing of the past but replenishing your front line with fresh inventory comes at a much higher price. Cox Automotive reported last week that prices at Manheim auctions nation wide had reached an all-time high in the 25 years the data has been tracked.
Low New Car Inventory is Driving the Wholesale Market Higher
While watching auctions across the country this week I noticed something I have never seen before. Multiple Toyota Franchise dealers in Puerto Rico were paying over invoice for 2019 and 2020 Corolla, Rav4, Highlander and Tacoma models. You can see the sold amount in the picture above and the invoice for the exact car in the image below. This validates the scarcity of New car inventory levels in the U.S. and surrounding countries.
Captive finance and leasing companies have become accustom to the soaring prices and when cars enter the auction block most cars, unless they have issues that are announced and running under the caution light, are starting $1500 to $2000 above MMR and their not backing off of their pricing strategies at all.
Is There Relief in Sight for Declining Wholesale Prices?
Sales of certified pre-owned (CPO) vehicles in June were up 9% year over year in June and up 10% month over month in May. With the continuing record-breaking pace that is being set in used car sales, I am not sure that there will be any relief in sight for declining wholesale prices. But I did witness something today that gave me a glimpse of hope.
Today’s Toyota Financial Services lane at ADESA New Jersey saw almost a 70% no sale rate and Toyota was not budging off their predetermined floors. The glimpse of hope is that dealers were not taking the bait and holding firm, not bidding when the cars were being offered at astronomical pricing.
Trust the Process
Your ability to trust the process of proper preparation and fully vetting every car you put on your buy list is essential to your success. There are bargains out there, you just must know how to find them. One of my favorite buying strategies is the “One Two Punch” method finding cars with a high Autotrader scarcity index and a low day’s supply. Even though the Scarcity Index is now integrated into Stockwave it is not as easy as just setting up a search for high Scarcity Index cars because there are no triggers to active to find these cars. I still put in the time weekly and analyze the scarcity index spread sheet I get from my Autotrader representative.
I had only 1 car on my buy list at this ADESA New Jersey sale today. The ever so elusive Toyota Land Cruiser and it was running almost at the end of the sale. So, I patiently waited and gained valuable market insight. I think most people would have just entered a proxy bid and never watched the sale.
“Patience is a key element to success.” Bill Gates
Trust your process and do not buy cars just to have inventory. If you do not believe me, you can hear it straight from Dale Pollak yourself.