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Why used car prices jumped 40% in August

As COVID-19 continues to have people limit going out and purchasing things in person, many consumers are curious why according to the CPI, used car prices jumped 40% in August. ACV Auctions CEO George Chamoun joins The Final Round panel to discuss why the COVID-19 pandemic has dealerships transitioning to digital platforms.

Video Transcript

SEANA SMITH: Welcome back to "The Final Round." Taking a look at the pandemic's affect on the auto industry, used car sales are picking up. And we're seeing a huge jump in price in the month of August.

For more on this, we want to bring in George Chamoun. He's the CEO of ACV Auctions, which helps dealers buy and sell used cars. And George, going through some of the numbers that we've gotten from Edmunds showing average list price for used vehicles jumping more than $700 dollars in the month of July from the month of June. What are you seeing on your platform?

GEORGE CHAMOUN: Yeah, Seana, thanks for having us today. But we we've seen the same lift. So when you kind of look back, historically, used cars, there's been many years of seeing depreciation being pretty consistent brand by brand. What we saw with COVID was new car dealers had less inventory. And with less inventory coming and having less cars on the lot, it increased the importance of the used car sector.

And your typical supply and demand, right? You have less supply, the assets are going to be worth even more. And what we found across the country was no matter what's going on-- COVID, virus-- the used car market and the new car markets are a really important part of our economy. Consumers need cars.

So we see strength in consumers buying cars. They need to get to work. They need to get to school. But with less of them, it's a massive market. There's 40 million cars, used cars purchased by consumers a year. And there's between 16 and 17 million new cars.

So think, it's a massive sector. Need cars. And when you have less supply, it increases demand, increases the price.

SEANA SMITH: Interesting, because when we talk about the used car market, we also have to mention just the role that rental car companies play in this. And when we had Hertz filing for bankruptcy protection back in May-- things are looking a little bit better for Hertz than they did a few months ago. But when we talk about the potential, I guess, for vehicles to flood the market, what's your read on that? And what would that particularly due to the market?

GEORGE CHAMOUN: So Hertz had-- at any one point, may have an impact of a few hundred thousand cars. Well, you take that impact across 41 million used cars that are purchased a year, and a number that even was more important and in the midst of having less new car inventory, it really just is going to have less of effect compared to not enough supply, right? When there's less trades into dealers, because they're selling less new cars, you simply had a broader supply. So the Hertz and other things like Hertz just don't have a big enough impact to reduce the prices of cars.

But fast forward, OK, and let's look at by the end of the year, new car dealers will have their lots sort of back to normal, right? We'll see great deals on sedans. We'll see those great lease prices on these trucks. Once these new car dealers have their inventory full, we'll start to see an inch back on used car pricing, back towards, right? Just like any other supply-demand, right, as we start to get the lots back full of both new and used, we'll start to see used car prices even out a little bit.

INES FERRE: George, Ines here. Are dealers that you're working with looking for certain types of cars? Are they looking for bigger types of cars? And do you have any sense on whether the buyers of those cars are first-time buyers or if they're buyers that are trading in their older vehicles?

GEORGE CHAMOUN: Yeah, we work across over 10,000 dealers. So we cover every segment, from new car dealers who might be looking for low mileage cars to mom-and-pop dealers who might have a corner store who sell cars for $2,000 or $3,000. I think one of the fascinating thing about the used car sector is there's a car for everyone. So whether it's going to college for the first time, whether it's I need a bigger car right now because we're heading to the lakes more often and doing less you know other types of travel, the used car segment is representative of all of America.

And it's one of the reasons why I love the sector so much, right, because you've got so much fragmentation. And so when a used car is traded in, it could be $1,000 car, we have unbelievable demand. It could at 150,000 miles on it. We have unbelievable demand.

And when you have a pickup truck with 20,000 miles on it, it's clean, of course, you're going to high demand. That's like the prize and joy of the used car industry. So it's really, it's-- what I'm seeing isn't just one sector. What I'm seeing is the importance of getting every car to the right dealer who then serves their constituents.

SEANA SMITH: All right, George Chamoun, unfortunately we have to leave it there. CEO of ACV Auctions, thanks so much for joining us today. We'll have you back.

GEORGE CHAMOUN: Thanks for having us. Talk soon.