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Used Car Prices To Remain High, Supported by Ongoing Chip Supply Issues: Carvana CEO

Carvana CEO Ernie Garcia predicted that prices may not level off for at least six to 12 months.

Video source: YouTube, CNBC Television

Used car prices will likely remain high until automakers can fix production issues stemming from the ongoing global chip shortage, according to Carvana Co (NYSE: CVNA ) chief executive officer Ernie Garcia.

During an appearance Friday on CNBC, Garcia said while sales volume for used cars “is pretty consistent with 2019,” there are “so many fewer new cars being manufactured and that’s pushing prices up.” 

During the second quarter of 2021, the average transaction price for a used car was $25,410, up from $22,977 in the first quarter and 21% year-over-year, according to recently-released data from Edmunds. The jump is the highest average price increase ever tracked by Edmunds.

Garcia, whose company is one of the biggest used car sellers in the country, predicted that prices may not level off for at least six to 12 months.

"It's hard to say… I think until the supply chains at the [original equipment manufacturers] get figured out, there’s likely to be some lasting impact,” he said.

“What we’re finding out is that the OEMs have supply chains that are maybe a little more fragile than we all wish,and they’ve got thousands of parts being manufactured globally and there’s Covid waves popping up in different parts of the world, so I think that makes it really hard to predict when that will normalize again,” he said.

Since late last year, automakers have been facing a shortage of semiconductor chips, which go into software modules used to control everything from brakes to dashboard touch screens. As a result, several companies, including Honda Motor Company, Nissan Motor Company and General Motors Company, have cut production as they try to line up chip supplies. 

Companies have also focused on supplying parts to their most popular models and delayed production of other cars to keep factories running.

The shortage is expected to cost the global automotive industry $110 billion in revenue this year, according to consulting firm AlixPartners.

For used car retailers like Carvana, Vroom and CarMax, the slowdown in new car production has been a boon.

Last week, the Arizona-based Carvana reported its first profitable quarter, generating $45 million in net income during the second quarter of 2021. Its total revenue also grew 198% year-over-year to $3.3 billion as it delivered more than 107,000 cars, a 96% increase compared to a year ago and the first time in its eight-year history that Carvana has sold over 100,000 cars in a quarter.


Source: Equities News

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