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The past two years have seen a huge rise in vehicle prices across the entire automotive industry, with dealerships struggling to get their hands on new cars, due to a lack of components and of course, the global pandemic having a severe impact on the automotive industry. Not only have these factors led to an undeniable rise in new vehicle prices but what’s more, the cost of used cars has skyrocketed too. Yes, it’s no secret that 2021 was a crazy year for used car prices, with the average cost of second-hand wholesale vehicles rocketing to 50 percent over the pandemic, and retail rates booming by 35 percent. In fact, since the start of the Covid-19 crisis, the price of used cars has continued to rise month-on-month, minus a short plateau last summer.
But, surely the prices need to come down, or at least settle, at some point? Yes! In fact, research shows that these prices are set to soften, especially at the end of 2022, if not, the beginning of 2023. It might take a while for the prices to drop but they will, with industry experts assuring us that these price tags are just temporary.
So, how will this impact the automotive industry? What do we need to know?
The price peak
In normal times, as it were, prices of used cars are constantly dropping, but with the chip shortage and supply chains having a huge impact on costs, we’ve seen many one or two-year-old second-hand vehicles sometimes sell for more than their original rate. Yes, in a time of desperation, dealerships across the country were forced to ramp up the prices of all of their fleet – and used vehicles were no exception.
And if you’re waiting for the prices to drop anytime soon, then you’ve got a few more months to go, with the cost of used cars set to peak during the first and second quarter of this year. With the chip shortage lingering, prices are expected to continuously rise over the next few months, before reaching an equilibrium towards mid-to-late this year.
It’s worth noting, we’re not expecting a chip overload overnight – so don’t expect the supply of new cars to suddenly boom when chips become available. Hold tight, and watch accessibility to vehicles to climb over time – and equally, used-car prices to drop just as gradually.
The chip shortage
A continuous lack of semiconductors over the past two years has impacted a number of industries across the globe, with the automotive sector being among those hardest hit. Prompted by the global pandemic, manufacturers struggled to keep up with the rise in demand for chips, with industries still feeling the impact today. To date, the chip shortage is anticipated to have cost the automotive industry in excess of $50 million. After all, manufacturers were struggling to build new cars, which had a direct impact on the demand for used cars – not just demand from customers, but dealerships too.
Of course, President Biden’s administering the 24/7 round-the-clock opening of Port of Los Angele has definitely helped relieve some problems surrounding auto parts production, yet the issue is far from resolved. We have no doubt about it, that the chip shortage will continue throughout the year – with demand for chips expected to be higher than ever, especially with the digital revolution leading to a rise in the use of technology and therefore the need for more chips.
But, steps are being taken to tackle the shortage in chips, including some hefty investments being made, and by the end of this year, demand is anticipated to slow down, with the hope that suppliers will at least start to be able to catch up as we head into 2023.
With this in mind and in anticipation of the chip shortage eventually working itself out, then dealerships should expect a drop in used car prices too. Simply put, increased access to chips will mean a rise in new build cars, and therefore, not so much of a demand for used cars – and dealerships need to prepare for this.
Focus on profit, not sale numbers
While used-car rates are set to drop in 2022, the industry isn’t expected to reach pre-pandemic prices. For this reason, dealerships should focus on making a profit, rather than counting the number of cars they sell – after all, there just isn’t the volume of vehicles available.
The fact is, demand for cars remains, so dealerships need to have confidence in their price tags and refrain from offering discounts.
So if you’re not already, then you need to make showcasing your fleet and everything they have to offer an absolute priority. And, thanks to SnapCell, it’s never been easier to create professional-looking vehicles of the cars your dealership is selling. At the simple touch of the button, SnapCell users can create walk-around clips of vehicles, focus shots of particular features, as well as give customers an overview of multiple cars available on-site. Let’s not forget that SnapCell allows dealerships to engage with a nationwide audience, which of course is a total bonus as competition between businesses continues to grow.
The fall in used car prices
Research has revealed that fall is when we are likely to see a drop in the cost of used-car prices. In fact, under normal circumstances, fall is usually the time when used car sales depreciate most. This, combined with the rise in new car manufacturing, is predicted to have a severe impact on the price of used cars.
Until then, dealerships need to be vigilant and remember that consumer demand for vehicles will still be there – and automotive businesses should act appropriately. Shoppers still want to get their hands on a new set of wheels – even it’s not technically new. Until the price tags drop, people will continue to pay the big bucks for a used car, so make the most of this. From putting your used cars at the front of your fleet, or promoting some of the used vehicles you have in stock on your social media pages, there are plenty of ways you can engage with potential customers. And with research showing that videos generally outperform images, it’s worth creating video content to help highlight available vehicles. Of course, with SnapCell seamlessly integrating with your social media platforms, uploading effective video content onto your channels is easier than ever.
Why stop at social media? If one thing is for sure, it’s that the cost of used cars will go down – when this happens we can only predict, but we know it will happen. With that in mind, your dealership needs to be consciously looking to get rid of second-hand cars while prices remain at an all-time high. As such, it’s worth reaching out to potential customers, using information from your CRM database, and contacting them directly with a relevant promotion video, using the SnapCell app.
Buckle up and prepare yourself for a drop in used car prices
It’s fair to say that the pandemic was pretty unexpected and recovery taking slightly longer than anticipated – with many automotive businesses still struggling to claw back following the Covid-19 crisis. A knock-on effect of course from the world totally shutting down has of course been the rise in used car sales. But those shockingly high rates have got to peak sooner, rather than later – surely. With that in mind, dealerships need to be making the most of making a profit on their used vehicle stock before prices plummet.
Get yourselves in the driving seat and make the most of the stock you have on-site – so you can sell those used cars while demand is there. If you’re not already, become a SnapCell customer and discover how the app makes it seamlessly easy for automotive professionals to create professional-looking videos, ideal for showcasing the used-car stock you have on-site. Connect with customers nationwide, thanks to SnapCell Live, engage with leads using SnapCell Messenger and give shoppers a real insight into your fleet thanks to the multiple features the app has to offer. Schedule your free demo today.
