THE 64 thousand dollar question for used car managers and their business owners is how long used car prices are going to be running at the inflated levels being driven by supply shortages out of the world’s car factories?

Manheim’s Used Vehicle Value Index based on auction values is running at all-time record highs and used car managers are sitting on stock purchased at prices inflated well above traditional used car values.

With reports that used car prices are on average $8000 above normal levels due to the supply shortages, used car managers need to be right on top of the degree of price support less they wind up holding large numbers of cars bought before values decline.

And while industry observers are saying it is too early to call – and Toyota’s news that it is cutting production by 40 per cent due to chip shortages may add a whole new level of price support for used cars – there have been a few early signs that demand is not quite what it was.

In June the Manheim’s Used Vehicle Value Index of auction prices was at 161.8 per cent – up from 141.6 per cent in January. But in July it did dip slightly to 158.8 per cent although that figure is still the third highest number ever recorded for the index.

Brenton Barnes, head of business improvement at Manheim told GoAutoNews Premium: “You  would have to be a very brave person to call the peak of the market but we have seen prices challenged, particularly in the last few weeks, with both New South Wales and Victoria being in lockdown.

“As we know, there are supply challenges, but we are also now experiencing issues with demand and we are seeing demand cooling at auctions.

“The vehicles are selling but it is getting hard to pair buyers with sellers because sellers still have the expectation that the vehicles are going to sell for 50 per cent more compared with what they were getting last year.

“There is just not that demand because it’s too hard for people to go out and buy a car right now. So that’s what is happening at the moment.

The index for used light commercial vehicles is also instructive not forgetting that light commercials are roughly a quarter of the market.  Having increased from 120 per cent around 18 months ago the light commercial index has been running at approximately 180 per cent for the past three months. It seems to have reached its peak for now.

But Manheim says that demand remains strong and the underlying demand is being demonstrated in demand for assets like vans with custom fleet fitouts that appeal to a more limited audience have become a lot easier to move. Assets like ambulances (people buying them to fit out as motorhomes) and those types of vehicles with very high kilometers have a very specific buyer.

“So it’s like the rising tide really does raise all boats and it has spilled over into all segments in the light commercial sector,” Mr Barnes said.

Manheim has also seen record prices achieved in its vehicle salvage auction business with salvage price indicators showing prices in August up 17 per cent year on year and up 47 per cent on 2019 prices.

“Salvage prices have gone through the roof and last week we actually had an all-time record high for salvage prices,” Mr Barnes said.

“What’s happening is that the high prices for used cars have actually spilled over into the salvage market.

“Most of the cars that have been written off are being exported. But there’s also a really strong market for anything that hasn’t been written off like repairable write-offs.

“So used car managers and used cars dealers who don’t want to pay that super high price at auction for a used car are buying a salvage car, paying to repair it and getting stock that way.

“In many states, they can be repaired and re-registered. So vehicles that can legally be re-registered after being repaired have a huge demand,” Mr Barnes said.

By John Mellor