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Economic downturn expected to disrupt U.S. used car market

Economic downturn expected to disrupt U.S. used car market
Used car prices are expected to decline in response to the economic downturn prompted by the COVID-19 pandemic, Edmunds.com reported Friday. Photo by Kevin Dietsch/UPI | License Photo

April 24 (UPI) -- Used car values are expected to decline as a consequence of the economic fallout of the COVID-19 pandemic, automotive analyst Edmunds.com Inc. reported Friday.

The normally strong market for used cars in the United States may see price reductions similar to those of the recession of 2008 and 2009, according to the report.

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Production shutdowns, supply-chain disruptions and a depressed demand for vehicles have affected the automotive business, and the $1.5 trillion used car market has increasingly been a source of revenue for car dealerships.

Although sales and inventory were strong until February, retail used vehicles sales for franchise dealers fell 63 percent in the first 13 days of April, compared to the same period in 2019, according to J.D. Power.

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Weak demand, returns of leased vehicles and lower prices at auctions where dealers get their inventory result in a decline in used car values. Supply has exceeded demand, with fewer buyers at fewer auctions. The Manheim Index, indicative of auction prices, fell 11.8 percent in April, attributed to the halting of auctions because of the pandemic.

The drop in demand is expected to lead to a decrease in value similar to that in 2008, when three-year-old vehicles declined 10 percent in value, compared with 5 percent the year before.

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The decline affects those who will trade in used vehicles for new, as well as manufacturers, rental car companies, and financial arms of General Motors, Ford and others. Lenders specializing in auto loans, including Ally Financial Inc. and Santander Consumer, will soon see drastic downturns, Edmunds.com said, as will used car and parts enterprises like Kar Auction Services, Copart and LKQ Corporation, among others.

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