Market researcher Jim Bianco believes used car prices are a bubble waiting to pop, with the appreciation of some vehicle types outpacing the stock market and even some cryptocurrencies like Bitcoin.
Speaking to CNBC this week, Bianco pointed out that the average transaction price of a used vehicle has risen by about 20 percent over the last four months, which is a steeper price hike than the S&P500 and Bitcoin have experienced over the same time period.
“As of December 15, the latest set of data we’ve got, they’re (used car prices) just accelerating higher and higher right now,” Bianco said Monday. “There’s no peak at least as of now.”
The average transaction price for a used vehicle in the U.S. last month stood at $27,569 – a 27 percent increase year-over-year. Multiple factors have worked to drive up used vehicle prices, but the semiconductor chip shortage is the biggest contributor. With the chip shortage slowing new car production down to a crawl at certain points this year, dealers received fewer shipments of new vehicles, forcing many consumers to shop second-hand.
Similar to Bitcoin or stock market speculators, Bianco said he’s observed an uptick in used car speculators, as well. These consumers have recognized the money-making opportunity with used vehicles and have begun to purchase more cars for the sole purpose of flipping them, he explained.
Due to these driving factors, Bianco believes the used car market is a bubble, describing it as “bubblicious,” and therefore not a safe investment. That said, he believes used vehicle prices could remain elevated for another year – although he acknowledged that predicting the future in such volatile times is difficult.
New vehicle transaction prices are also up amid increased demand this year. The average transaction price of a new vehicle last month stood at $46,329 as incentive spending remained low and consumers continued to buy up pricier large crossovers, SUVs and pickup trucks. This represents a 13 percent increase year-over-year in new vehicle ATPs.