With prices for used cars hitting an all-time high amid the global supply crunch for semiconductors and other materials, the second-hand auto market remains hot as demand continues to outpace supply. According to a recent Bank of America Global Research (BAC) report, the space is poised to stay strong through an e-commerce boom.
“Overall, December 2021 total auto inventory increased for the third sequential month and inventory levels are improving from a trough of 1mn but still far below the 5-year average,” the BofA report reads. “We see the eventual decline in used car prices as a potential risk, but note that the fast turn and limited size of inventories at Carvana (CVNA) and Vroom (VRM) should mitigate the risks of major mismatch in sourcing vs. selling prices.”
The average listing price for a used car climbed above $28,000 for the first time ever in December per a Cox Automotive analysis of vAuto Available Inventory data. This was up from a revised price of $27,726 for November when the average listing price passed $27,000 for the first time.
Over the course of the pandemic, used car prices have jumped by at least 50%, but may be starting to show signs of easing as of the end of January. According to data by car-shopping app CoPilot provided to CNBC, the average price of a used car that is one to three years old is down 2.1% to $41,121 from about $42,000 in early January. The average price of 2019 vehicles has decreased 2.5% while 2020 models have fallen 4.4%.
Carvana and Vroom to remain competitive
BofA believes that broader tailwinds for the used-car market represent opportunities in vehicle e-commerce platforms like Carvana and Vroom despite the possible lowering of prices in the medium-term.
“Looking ahead to FY22, we think secular trends will drive further momentum for Carvana and indicate longer term opportunities for share gains are still ahead and current share prices for Carvana and Vroom represent attractive opportunities,” BofA’s report reads.
Dataweave information on retail e-commerce suggests that Carvana will deliver around 116,000 cars in 4Q 2021. BofA cited several anticipated themes for the upcoming earnings report including possible supply chain improvement during the second half of 2022, the used car demand outlook post-Omicron peak, as well as the competitive outlook. BofA maintains its Buy rating on Carvana with a price target of $320. Carvana is set to report fourth quarter earnings Feb. 24 after market close.
As for Vroom, Dataweave forecasts about 26,000 units delivered in 4Q 2021. BofA maintains a Buy rating on Vroom with a price target of $30. Vroom is set to report fourth quarter earnings Feb. 28 after market close.
“Going into 4Q, we think key themes are management commentary on demand outlook into 2022 and logistics executions in car sourcing/inventory management,” the report reads.
Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV