Used-Car Shoppers Find High Prices, Few Options

The climb, which began last year, has surprised some dealers who say they don’t see the trend ending soon.

“What is normally a depreciable asset has been appreciating,” said Phil Maguire, who owns Maguire Family Dealerships, a group of 13 stores in New York state. “It’s certainly surreal, and I guess we can all agree that it’s an anomaly.” Dealers say they are having to pay more to keep their lots stocked.

The surge is being driven in part by the global chip shortage, which is straining inventories on the new-car side and leading more consumers to shop the preowned market. At the same time, used-car supplies were tight heading into the year because people were hanging on to their leased vehicles longer, according to analysts, executives and dealers. Rental-car companies also had pared back their fleets early in the pandemic, leaving them with fewer vehicles to sell later in the year.

The higher used-car prices are further challenging affordability for Americans in need of new rides and come as demand for vehicles overall continues to rebound after auto sales collapsed last spring.

Shoppers also are paying top-dollar for new cars and trucks as auto makers and dealers that are thin on stock pare back their discounts. The average price paid for a new model climbed to a near record of $37,572 per vehicle in April, up about 7% from a year earlier, according to J.D. Power.

The low inventory and increasing prices on dealership lots reflect a larger retail trend, with consumers paying more for everything from household goods to food items. Manufacturers have struggled since last year to keep up with customer demand as they recovered from Covid-19-related production stoppages and now face new supply-chain disruptions.

The U.S. auto industry, likewise, is still trying to regain its footing following a roller coaster 2020. Car companies lost nearly two months of production when the pandemic first hit in the spring of last year and were short on inventory when demand for cars and trucks roared back over the summer.

The recent chip shortage has only made it harder for auto makers to restock, and dealers have been increasingly steering shoppers toward used cars to offer them something to buy.

U.S. sales of used-vehicles hit 3.4 million in April, up 58% from a year earlier, according to car-shopping website TrueCar.

Meanwhile, retailers started April with about 18% fewer preowned cars and trucks on their lots than they did in the prior-year month, according to vAuto, a firm that provides new and used-car data to dealers.

Rental-car firms, which are big sellers into the used-car market, are also holding on to their vehicles longer as leisure travel bounces back and as getting replacements for their fleets becomes tougher.

Hertz Global Holdings Inc. and Enterprise Holdings said they are taking the unusual step of buying used cars to fill holes in their fleets as the microchip shortage continues to dent new-vehicle stock.

“If you don’t need that vehicle right now, just wait,” said Ivan Drury, an analyst for car-shopping website Edmunds.com. “You are not going to get anything you want, whether that be the price, the selection or those little things that you really don’t want to compromise on.”

He added that inventory challenges are likely to worsen before they improve and that circumstances might not normalize until next year.

Robert Santoro, a 37-year-old New York City attorney, is among the car shoppers who can’t wait. He is looking for a used car to replace a leased vehicle that he has to turn back in this summer. Mr. Santoro said he was hoping to spend less than $20,000 but isn’t sure that will be possible.

“I’ve been most surprised by how the prices just keep going up,” said Mr. Santoro, who is looking at Honda and Mazda sport-utility vehicles. “It’s only hard to find them at a decent price point.”

Dealers say competition is also intensifying at wholesale auctions, with many used-car sellers bidding up the price to secure supplies.

Scott Smith, president of Smith Automotive Group, a dealership chain in the Atlanta area, said he recently paid close to the original sticker price for two-year-old Nissan Sentras at auction—a higher cost that his business is likely to pass along to customers.

“The retail price for used cars has become a real moving target,” Mr. Smith said. “I’ve never seen a market like this.”

The elevated resale values are helping to boost earnings for car companies, whose lending arms have been able to sell off leased vehicles for more money than previously anticipated. General Motors Co. said Wednesday that its financing unit posted a record first-quarter pretax profit, driven in part by surging values for the used cars it keeps on its books.

The hot used-car market is also benefiting some consumers who are finding they have more equity in their vehicles. The average trade-in value for a vehicle reached a record of $17,080 in March, nearly $3,000 more than the average value a year ago, according to Edmunds.com.

Such increases can help spur new-car purchases as well, said David Christ, group vice president and general manager for the Toyota division at Toyota Motor North America.

“Customers that might have owed more than the car was worth suddenly now are breaking even or even bringing equity to the new car deal,” Mr. Christ said.

—Ben Foldy contributed to this article.

Write to Nora Naughton at [email protected]