Global chip shortage drives demand for used cars in Austin - Austonia

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Looking to take advantage of low-interest rates and stimulus check savings by buying a used car? Get in line.

Used car prices are soaring nationwide due to a global semiconductor shortage, which has forced some car manufacturers to shut down assembly plants, limiting new car inventory. There's also pent-up demand from consumers, who are armed with savings and ready to spend at this stage of the pandemic.

Killion Auto Sales in Round Rock had just one used car on its lot on Monday, compared to at least 60 normally, and has closed on Saturdays for the foreseeable future. "I am still buying cars, but they are just selling as fast as I bring them," co-owner Nathan Killion told Austonia.

Used car inventory is largely determined by new car inventory, fueled by trade-ins and other turnover. Car manufacturers faced factory shutdowns during the pandemic and are now contending with a chip shortage, meaning new car inventory is severely limited, and demand is spilling over onto used car lots.

Although demand is high Killion says, with stimulus checks and accidents driving customers onto used car lots, it doesn't make financial sense for him to buy used cars at a huge markup because his small dealership handles its own financing. Even if he is able to sell such vehicles at a profit now, the market will eventually correct. If one of his buyers gets into a car accident, insurance may only cover a portion of the car's sales price, leaving him out of pocket. "We've decided that it's better to have fewer cars that I can try to sell for reasonable money and to mitigate that loss when something bad happens," he said.

Still, with sparse lots and eager customers, the used car market currently benefits sellers.

"I just sold one of my cars for nearly the same price I paid for it three years ago," Randy Frederick, Austin-based managing director of trading and derivatives at the Schwab Center for Financial Research, tweeted on Monday.

South Austin Nissan is "giving all the money for decent vehicles" due to the nationwide inventory shortage, sales consultant Mark Sanchez wrote in a May 6 Facebook post. "Decent mileage and well taken care of pre-owned vehicles are worth GOLD!"

Carmax, the largest buyer and seller of used cars in the U.S., saw record demand in the first quarter of its current fiscal year, selling approximately 452,000 cars between March and May, up 128% from the same period last year, according to a statement shared with Austonia. The retailer, which has two Austin locations, reports that its sellers often receive a higher offer than they anticipated.

But a seller's market may price out prospective buyers. (Just look at the Austin housing market, where similar supply-and-demand issues are at work.) Overall, used car and truck prices increased 10.5% in June and a staggering 45.2% year-over-year, according to the U.S. Bureau of Labor Statistics.

Some used cars now command higher prices than their brand-new counterparts. "Dealers may think used car buyers are willing to pay more for the instant gratification of a lightly-used vehicle they can drive right off the lot rather than waiting for a new one," iSeeCars.com Executive Analyst Karl Brauer said in a recent analysis.

Killion anticipates it will take at least a year for new car inventory to catch up to demand after various delays. In the meantime, he has four or five notes on his desk from people who are looking to buy a used car, if only he can find one. "Having transportation in Austin, Texas, is not exactly optional," he said.

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Global chip shortage drives demand for used cars in Austin - Austonia

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