You read it here first, folks: Asia Times warned you on April 16 that used car prices in the United States were exploding.
Today’s update to the authoritative Manheim Index of used vehicle prices shows a jump of nearly 10% in the past month, bringing inflation in that market to a startling 41% since the Covid-19 pandemic hit the US in February 2020.
The Priceman Cometh, to borrow a title from Eugene O’Neill’s barroom tragedy. The Consumer Price Index for used vehicles shows a year-on-year increase of just 8%.
Anyone trying to buy or rent a car in the US knows better. The country that invented the mass production of automobiles and gave car ownership to the common man is out of passenger vehicles.
Rental agencies in Arizona last week charged US$700 per day for a mid-sized SUV and a subcompact in Florida went for $2,000 per week. Americans are distraught.
Home prices jumped by 11.5% in the past year – while the US government claims that inflation for shelter rose only 1.8% in the year to March – but this is different: Americans can sleep in their cars, but they can’t drive a house.
Auto production in the US has fallen from an annual rate of 12 million units in December to 9 million units in March. The big car rental chains sold their old fleets earlier this year at fabulous markups, but can’t find new cars to replace them.
The global semiconductor shortage has constricted vehicle production around the world, and the US has neither the production capacity nor access to sufficient imports to meet demand.
After a year of pandemic, US auto sales rose in March to an annual rate of 17.75 million, catching up after the collapse that brought auto sales down to half that level in April 2020.
But there are no cars in dealers’ lots. As of last month, dealers had only 377,000 vehicles in inventory, the lowest level on record. The normal inventory level is more than 1 million.
Demand isn’t unusually high, considering how far auto sales fell last year. The 12-month average of US passenger vehicle sales is only 14 million, the lowest since 2012.
But supplies are constrained by a semiconductor shortage caused in part by the whipsaw of canceled orders followed by frantic catch-up buying of computer chips during the pandemic.
To make matters worse, US tech sanctions against China also disrupted the complex global supply chain of semiconductors.
By the end of 2021, measured inflation will rise from today’s 2.7% year-on-year gain in the Consumer Price Index to 4%-5%, and long-term US bond yields correspondingly will rise by another 1% or more. That can’t be good for the stock market.
Be afraid. Be very afraid.