Soaring used car prices haven’t dampened demand

Demand for used cars remains strong even as the price of used vehicles has skyrocketed throughout the Covid pandemic, Group 1 Automotive CEO Earl Hesterberg told CNBC on Thursday.

Hesterberg told “The Exchange” that Group 1 has largely been able to raise list prices to offset higher acquisition costs because there are customers willing to buy them. This has helped the company achieve record profitability in 2021.

Despite Group 1’s ability to successfully protect its margins, Hesterberg suggested there could be a time when demand cools.

“I don’t know if we can do this indefinitely, and we’re moving them around pretty quickly,” he said. “Normally we only have about a 30-day supply of used vehicles, so we can react fairly quickly to market price changes.”

There’s a mindset in some people that right now is the “best time” to sell a car, Hesterberg said, which has both helped and complicated the Group’s used vehicle fleet. 1.

“These cars are worth a lot of money. … We had to be a little more creative with sourcing, but we managed to keep our inventory at near-ideal levels,” Hesterberg said.

Group 1 had 36 days of used-vehicle inventory as of Dec. 31, compared to 32 days of inventory at the same time in 2020, according to the company’s earnings report released Thursday. New vehicle inventory stood at nine days as of December 31, compared to 48 days of inventory in 2020.

Shares of Group 1 fell more than 5% on Thursday, even as its earnings were better than expected for the fourth quarter. U.S. stocks fell on Thursday after January’s Consumer Price Index report showed a 7.5% jump from a year earlier, marking the biggest rise since 1982.

Thursday’s inflation reading led some on Wall Street to believe the Federal Reserve will act more aggressively to raise interest rates. The central bank is expected to do so at its policy meeting in March, and then several times throughout the year.

Hesterberg said he’s not too concerned about the impact higher interest rates will have on demand for used and new vehicles.

“The consumer has money and he wants to spend that money. He would like to buy more cars than we can supply. It’s never good when interest rates go up, but they’re so low,” by compared to historical averages, Hesterberg mentioned. He added that even if rates go up for auto loans, automakers can offset some of those costs with incentives to keep sales going.

“I don’t see it as a headwind for us in the short term either,” he said.

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