There are 80,000 items that make up the Consumer Price Index, the basket of goods and services economists use to measure price increases, and together they’ve collectively pushed inflation to a 40-year high.
But the individual price increase for one of these goods is really cruising.
From December 2020 to December 2021 the price of used cars and trucks jacked up 37%, according to the latest consumer price index report from the Bureau of Labor Statistics, the largest 12-month change for cars in the history of this index.
The hike has demoralized buyers, forced used car dealers to switch up sourcing, and possibly forever rewritten the rule book for the economy of cars, from manufacturers on down — and according to experts, there is little price relief on the horizon.
“The entire used car system, book values, option values, everything has risen, it’s huge,” said Cam Bennee, general sales manager at Bountiful Toyota, which sells new and used vehicles. “It’s gotten to the point where 3-year-old vehicles have value that’s now $5,000 or more above the original window sticker price from when they were brand new. It’s absolutely insane.”
Price insanity, of course, puts some closer to the brink than others as the market surge has yielded some advantage to dealers whose profit margins are gleaming while buyers find themselves edged further to the shoulder.
The moment paints a stark contrast to pre-pandemic years characterized by relentless radio spots advertising zero down and thousands off at dealerships across the state, because now incentives have evaporated and the tables have dramatically turned to put control in the seller’s corner.
“In my 20 years doing this, it’s the only time in my career I’ve literally, in all politeness, been able to tell a customer, ‘Look, it’s really no big deal if you don’t buy because I’ve got 50 other people ready to buy this thing.’ Whereas before it was like, ‘What do we have to do to get you this deal?’ Now the tables have turned to where the dealers have the control,” Bennee said.
But Bennee says sellers are not unscathed. They’re coping with the growing stresses of limited inventory, a problem with no clear end in sight as manufacturer output remains slow amid a continued shortage for inputs like computer chips, which experts say is the root cause of price spikes.
But sellers won’t find sympathy from Utahns like Luke Dolan, a prospective car buyer who has seen prices steadily climb out of range and who says the search for affordable cars now feels futile.
“I’ve been looking for midsize trucks for two years now. I thought they were expensive back then, and now everything’s ridiculous,” said Dolan, who began his search at dealerships before turning to online sellers like Carvana and KSL Classifieds. “I’ve been hot and cold. I get all excited about a car, but then I look and see the prices of things and go, oh, that’s quite a bit of money. Every time I look I end up saying this is a waste of time. It makes me angry.”
Dolan, who wants a truck for his work in custom home construction, says the pandemic has been a lesson in regret, and he beats himself up for the day in 2020 when he almost drove a pre-owned Tacoma off the lot of Bountiful Toyota. But worries over a then-fledgling pandemic loomed and uncertainty caused him to decide against the purchase.
If he only knew then what he knows now.
“Looking in the rearview mirror, I kick myself when I think about buying that car. It was probably the best deal I’ll get for the next five years,” Dolan lamented. “At the time, the state of the world had me wondering, am I even going to have a job? But now that same car has gone up around 6,000 bucks, and it no longer makes financial sense for me.”
Bennee has seen the story play out innumerable times, and it still surprises him.
“We had a guest with a TRD off-road 4-Runner that he bought from us in 2020 and he paid 33 and a half — but the value right now? It’s 52 grand!”
Reverse engineering the auction
For sellers exclusively in the used-car trade, the supply pinch has forced them to develop new muscles for sourcing vehicles, as the traditional go-to place for building inventories — the auto auctions — have become a dangerous frenzy of rash bidding that’s increased risk for retailers.
“People are getting emotional at the auction right now. When you have limited inventory and limited supply, you see prices do really crazy things,” said Dave Nielson, president and CEO of Low Book Sales.
Pre-owned retailers have relied on auctions as a vital car sales aggregator, which sources vehicles from a host of entities, picking up fleets from government agencies or rental companies, along with repo companies and banks. But the supply crunch is reverberating across the auction and making purchases risky for retailers like Nielson.
“It’s not that I couldn’t go down to the auction and raise my hand and buy as many cars as I want. I just don’t feel comfortable buying them at these prices in bulk. We’re being really careful right now.”
Nielson says that rental car companies, which both buy and sell at the auction, are complicit in the auction instability, bidding up cars out of desperation.
“Their business is renting cars, and if they don’t have cars to rent they don’t have a business, so they’ll pay anything to get a car and then they’ll just double the rate on the rental. When you have that type of behavior going on at the auction you can get hurt, so we’re being very selective.”
Nielson says before the pandemic he bought as many as 80% of his vehicles from the auction. Now, he’s buying fewer than 10% at auction. To fill the gap, he developed new processes and created teams who scour the car market to locate personal sellers across different states.
“I reverse engineered the auction model. The auction charged me a $400 buy fee. So I just took that money and gave it to the person working for me, and what’s the difference because I’m still getting it for less than the auction price,” Nielson said. “It’s almost like I can buy cars from other people then sell them at the auction for more if I wanted to. I’ve done it for 25 years and I’ve never seen it like this before. Everything is backwards.”
Even as Nielson believes he’s created a competitive price point in this market, it doesn’t change the fact that costs have soared on his lots as well, which is one of the reasons Utahns are now looking to social and familial networks to find cars, relying on social capital where cash alone is not enough.
Herriman resident West Brewer had become discouraged after months of looking for a car with his 17-year-old daughter, Ally. At dealerships they found high prices and slim pickings, so they decided to tap into social networks, putting word out to family and friends about interest in cars.
The effort required patience, and Brewer discovered even social connections can be out bid, but he eventually found a cousin willing to sell a Honda CRV in their price range.
For a moment, Brewer worried the car would slip away like others before it.
“After he agreed to sell to us, he came back and said he found someone who’d pay $2,500 more than what we offered. So I told him just do what’s best for yourself, sell the car and get more money,” said Brewer.
“I wouldn’t have blamed him and I thought he was kind of crazy for not taking the other deal, but he told me, ‘Hey, I already told you I’d give it to you so it’s yours if you want it.’ And I’m really glad he kept his word and sold to me because deals like that are hard to find. You got to move quick on them.”
West and Ally Brewer drove the car home the first week of February.
For those who lack social networks like the Brewers’, the challenge of finding affordable vehicles shows no sign of easing.
“I do not see this trend stopping. And I also wonder if by design they’re not going to change things because I think the factories are making more than they’ve ever made, and I think the dealers are making more. So I wonder if this may be the new norm,” said Nielson of Low Book.
Even when production begins to ramp back up, there is indeed reason to question if the car economy will return to business as usual. For instance, dealers have traditionally preferred larger inventories, but scaled back lots have given sellers reason to reexamine the efficiencies of scale, an aspect of the business Bennee likens to groceries.
“It’s almost like produce. Instead of giving you 38 boxes of bananas that you might not be able to sell, and so a bunch of them spoil and then you have to discount them,” they look for a sweet spot of “X number of bananas, so we can always sell them before they spoil and always have fresh ones and therefore make more money,” Bennee said.
“The manufacturer floors those vehicles, but the older they get the more interest the dealer has to pay because they’re just sitting there. So they might shrink inventory to levels that are moving quicker rather than just mass producing in a way that makes all these dealers sit on a bunch of vehicles,” said Bennee, who says that “though volume isn’t as much, the gross profit is through the roof.”
Nielson, who says he prefers larger inventories and hopes to return to a full lot, reiterates that this issue boils down to a basic function.
“What you’re paying for a car right now is just a function of supply and demand. There’s nothing else to it. So how will it stop and when will it stop? It will stop when they produce new cars,” Nielson said.