Tim Sandness has gotten used to pulling into a bare car lot lately.

While Sandess usually has around 20 to 30 vehicles for sale any given time at his local used car dealership along Sanborn Boulevard, he’s watched it deplete to just two over the past few months. And when he does get some new inventory on the lot, he said it’s gone within days, sometimes even hours.

“New car dealerships have been buying used cars like crazy just to have inventory,” said Sandness, who owns the Auto Shoppe in Mitchell. “I’ve never seen something like this in my 35 years of running the dealership.”

Selling cars as soon as they hit the lot may seem like a good problem to have, but Sandness the strong demand for used cars nationwide has posed a new challenge he’s yet to experience: getting inventory.

“I just had a dealership come and buy eight of my used cars off the lot at one fell swoop. It’s a challenge to even get inventory with the high demand,” he said. “I think the new car supply chain will pick back up in a few months. I’ll be building my inventory back up, and it will help when the supply chain picks up again.”

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So what’s driving the sudden demand for used cars? Sandness and other local car dealerships say it’s largely due to the disruption of the automobile manufacturing supply chain, which has led some larger-scale dealerships to add more used cars to their own dwindling inventory.

The surging demand for used cars can also be seen in the lots at Iverson Auto -- which is one of the largest dealerships in the Mitchell area that sells both new and used cars. Before the pandemic, a steady flow of new Jeeps aligned an entire corner section of Iverson Auto’s lot along Burr Street. But now, used cars have temporarily taken their place.

While used cars make up a little over half of Iverson’s inventory, the local dealership has been bringing more in as it waits for new automobile production to ramp back up at a higher capacity like it was pre-pandemic.

“The supply chain has screwed everything up. If you look at the basis of all this high used car demand it is traced to the shutdown of automobile production when COVID-19 hit us,” said Austen Iverson, owner of Iverson Auto. “There is 100% demand for new cars out there, but there is just no to little supply.”

To put the spike in demand into perspective, Iverson said he could sell all of his used cars to dealerships at a much higher price today than what the current asking price is for customers. Considering he employs a big staff of car sales professionals, selling off all the used cars for a higher price than the sticker price isn’t an option he would ever mull over.

“If you do that, then you don’t have any inventory. And if I did that, I would have no chance in replenishing my inventory for our staff to sell,” he said.

In March, used car sales in South Dakota jumped 81% compared to March 2020, according to the state Department of Revenue.

In Iverson’s five years of running the Mitchell dealership, he’s never witnessed such a strong demand for used cars. Nor has his father, John Iverson, who previously ran the dealership for over four decades. The father-son duo have also never seen the supply chain of newly manufactured cars be disrupted like it has during COVID-19.

Iverson pointed to the coronavirus relief stimulus checks that were doled out to U.S. citizens over the past year as another major factor that’s driving the surge in used car sales to levels industry leaders have never seen before. Although business has been booming at Iverson Auto, keeping the inventory fully stocked will pose a challenge in the immediate future.

“The used car market is surging, and a lot of that is also due to the stimulus checks. Everything kind of funnels its way up,” Iverson said, noting the Mitchell dealership sells around 100 used cars per month. “We had so many people coming in and buying $15,000 cars, which I feel was likely due to the stimulus checks giving them enough to meet the 10% down payment.”

Prices rising to levels never seen before

With the supply chain disruption and increased demand, Austen Iverson said it’s created used car prices to be “artificially inflated at unprecedented rates.”

According to the most recent Consumer Price Index report from the U.S. Department of Labor, used-car prices climbed a staggering 29% in the past year.

In the past, Austen Iverson said used cars went down in value immediately after buying them at auctions to transport the vehicles back to the lot and sell them. For the first time in his years of running the dealership, Austen has seen the value of used cars increase following the purchases.

“It’s always been you buy used cars today knowing they will be worth less tomorrow. But now I’m buying used cars today knowing tomorrow they will be worth more tomorrow,” he said. “It’s crazy.”

Finding a fairly reliable used car for $3,000 to $3,500 has proven difficult lately. At Iverson Auto, the lower end price range for older model used cars that were manufactured in the past 10 to 15 years hovers around $6,000 to $10,000. For newer model used cars that were manufactured in the past two to three years, prices range from $25,000 on the lower end to $35,000 on the high end.

Like many auto industry leaders, Austen Iverson is unsure how long the inflation of used cars will last. However, he is optimistic the inflated prices will eventually subside once production of new vehicles picks back up to meet the demand.

“I think inflation will shrink back down as the supply chain catches back up and the demand starts to lower then we will see inflation come to more of a n equilibrium,” he said. “The economy is continuing to ramp up. If demand in new cars isn’t met, used car prices will still be able to go up and see a flat curve. But I do believe it will eventually go back down.”

As automobile manufacturers are backlogged from the pandemic that halted production, he isn’t anticipating used car prices to flatten out anytime soon.

“Unless a tidal wave of 500,000 brand new cars are finished tomorrow and every single automotive transportation service in the world coordinates a way to get the vehicles to dealerships doors tomorrow, then the prices won’t just fall back to what we were seeing before the coronavirus,” Austen Iverson said.