America's car dealers are starting the month of October with approximately 2.26 million unsold cars on their lots, marking an 8% decrease compared to last year.

Limited Supply Leading to Higher Prices

At the current sales rates, this inventory level translates to about a 47-day supply of used cars, which is below the traditional goal of maintaining a 60-day supply in stock. Consequently, the limited supply is expected to drive prices higher.

According to Chris Frey, the senior manager of Economic and Industry Insights at Cox Automotive, although there has been a slight increase in the number of used vehicles available for purchase since the low point observed in early April, the overall inventory volume has remained stagnant within the range of 2.2-2.3 million for the past four months. It is important to note that Cox Automotive is the parent company of Kelley Blue Book.

Experts anticipate that the current decrease in inventory will have an impact on prices. While there was a slight decline in prices during August, industry analysts believe that this dip may not be long-lasting. The wholesale prices paid by dealers at auction for used cars they later sell have started to rise since late August, following several months of decline. Typically, trends in wholesale prices tend to reflect in retail prices after approximately six to eight weeks.

In light of these developments, it is clear that the market for used cars is currently facing challenges. Additionally, a recent study indicates that the availability of used cars priced under $20,000 has significantly decreased.

Pandemic's Long-lasting Impact on Car Supply

Kelley Blue Book analysts project that the effects of the pandemic will continue to impact the supply and prices of used cars for years to come. With approximately 8 million fewer cars produced during this period, there is expected to be a shortage of used cars in the market. Consequently, prices are likely to remain higher than what Americans have grown accustomed to.

Low Inventory and Price Segments

Similar to new cars, the inventory of used cars is particularly tight in the lower price segment. Vehicles priced under $10,000 have an inventory supply of only 32 days. As the price segment increases, the supply of used cars also increases, with the over $35,000 category having the highest supply of 58 days.

Brands with Limited Inventory

Among non-luxury brands, Honda, Mazda, and Toyota have been hit the hardest in terms of limited used car inventory. Honda has a supply of 39 days, while Mazda and Toyota both have a supply of 40 days. Most other mainstream brands, both luxury and non-luxury, have a used-vehicle supply of under 50 days.

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