Car Industry ‘Winning’ as Vehicle Supplies Remain Low

The pandemic-era supply chain issues that hit the car industry may have abated.

But that doesn’t mean things are back to normal, and — as Seeking Alpha noted in a report Sunday (Sept. 3) — that’s good news for the used car sector.

According to the report, industry analysts project carmakers will produce 10 million to 12 million fewer vehicles for the period between 2020 and 2025, which means no used cars. And Cars.com says it expects the supply of leased cars to drop as well in the next three years.

“That’s a hole coming in the used vehicle market,” said David Greene, industry and marketplace analyst for Cars.com.

Greene added that consumers who thought they were paying too much for used cars during the pandemic might have actually received a discount.

“Prices are going to stay elevated for several years,” he said. “The entire industry is winning.”

Meanwhile, Cox Automotive estimates a respective 35.5 million and 36.2 million used vehicles will be sold this year and next year, down from the pre-pandemic average of 38 million.

“That’s creating a situation where prices are higher, supply is a bit lower, and people are having to go deeper into used cars,” Chris Frey, business intelligence senior manager for Cox Automotive, told Seeking Alpha. “That means older and higher mileage units to find something appropriate for their monthly payment, which is the strongest determining factor of what affordability is.”

This news follows reports from last month that affordable vehicles were becoming more and more scarce for car buyers.

And as for cars that are already in consumers’ driveways and garages, the pressure to keep them running has caused many drivers to turn to financing methods such buy now, pay later (BNPL) to keep their cars on the road, CarParts.com CEO David Meniane told PYMNTS in an interview in August.

“Monthly payments are going up,” he said of the loans that consumers take out to finance their cars, “even as the value, or the car prices, are coming down.”

And as loan terms grow and as consumers try to make the debt more affordable, it may be less attractive for drivers to roll their debt over into a new car. That has created a situation in which the average car on the road is 12 years old, which means more frequent repairs to keep these vehicles safe and operational.