Car sellers are suddenly earning a profit on vehicles with broken engines and frames, as tight auto supply sends prices soaring to record levels

Used car sale dealership
Car dealership. Bill Pugliano/Getty Images
  • A lack of supply of new vehicles pushed used car prices to record highs in May.
  • The CEO of an online marketplace told Forbes he’s paying a premium price for damaged cars.
  • “We’re making money on these because auction pricing is so intense and high,” he said.
  • See more stories on Insider’s business page.

It’s no secret that the used car market is absolutely bonkers lately, but demand has gotten so strong and supply so tight that one dealer says he’s now buying cars he previously would never have considered.

“We’ve been seeing things clear at 103%, 110% to MMR (Manheim Market Report)- cars that we bring in we would never sell that are damaged, like frame damage or need massive engine rebuild,” said Toby Russell, co-CEO at online used vehicle marketplace, in an interview with Forbes.

“Normally we would lose a little money on that, but we’re making money on these because auction pricing is so intense and high. It’s just a total dislocation in the market caused by a surge in demand and lack of supply coming from new cars,” he said.

Russell told Forbes that Shift now pays 25% more for vehicles than it did a the start of the year.

“That’s like crazy,” he said. “Usually used cars will depreciate 1% per week but the car sitting in your driveway is likely to be worth 25-30% more than it was in January.”

At the start of May, used-vehicle prices reached an all-time high, topping more than $22,500, according to a Cox Automotive analysis of vAuto Available Inventory data.

“Given the strong demand from consumers, and the tight supply situation, it seems likely that used-vehicle prices, already at all-time highs, will continue to rise,” said Charlie Chesbrough, Cox Automotive senior economist. “At some point, prices will become too high, and demand will recede. But we are not there yet.”

The supply of used vehicles on dealers’ lots is less than half of what it was this time last year (fewer people were buying cars then), and it’s also well below the same month in 2019.

As sales taper off from their frenetic pace earlier in the spring, Chesbrough says there’s a simple reason for the slowdown: “Folks can’t buy what isn’t there.”

Jonathan Banks, vice president of Valuations Services at J.D. Power, said used retail prices are up 15% this year with no signs of backing down.

“Used-vehicle prices have shown no signs of softening and are expected to remain exceptionally strong for the foreseeable future,” he said.

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