Omotayo Tajudeen on Unsplash, https://unsplash.com/@omotayo_ty
Used car prices have been on a wild ride and it’s not over yet.
Pandemic-related supply chain issues that drained inventory in the new car market helped drive the biggest annual used car price gains on record – up 45 percent in the 12 months ending in June 2021, according to the Consumer Price Index.
Buyers who would otherwise have bought new cars bought used cars instead as parts shortages, especially for computer chips, choked off new car production for most of 2022.
“At one point it seemed that everyone who was going to buy new ended up buying used,” said Greg Markus, executive vice president of AutoLenders, parent company of New Jersey’s largest used car dealership chain.
Prices of used cars have since swung back down with a 12-month decline of 8.8 percent in December. That’s the biggest price decrease since June 2009, when the U.S. economy lost 5.05 million jobs and the government bailed out General Motors and Chrysler from bankruptcy, and at one point owned 61 percent of GM.
The main reason for falling used car prices is the increased supply of new cars and price increases that were unsustainable, CNN reported.
The average price of a used car in December was $29,533, down nearly $1,600 from the record high of $31,095 in April 2022, according to Edmunds. That makes today’s average used car price about the same as the average price of a new car in 2010, CNN reported.
Used cars that are five years or older have seen a price decrease of 15 percent or more from their peak in early 2022, according to Edmunds.
“There was nowhere for these prices to go but down,” said Greg Markus, executive vice president of AutoLenders, the parent company of New Jersey’s largest used car dealership chain.
CarMax, the largest U.S. used car dealer, has warned that high prices combined with high interest rates are making car buying unaffordable for many buyers and hurting overall demand.
One of the casualties of the changing car-buying environment is the car leasing segment. More and more car shoppers in the U.S. seem to be foregoing leasing their next vehicle in favor of buying or financing them outright, according to Business Insider.
Leases made up 31 percent of the auto market in January 2020, and 17 percent in July 2022, according to data from consumer credit reporting agency TransUnion.
Leasing is getting more and more expensive. The average lease payment was $661 in December 2022, up 33 percent since March 2020, data from Cox Automotive showed.
Generally, car owners are holding onto their cars longer. The average age of a vehicle was 12.2 years in 2022, Business Insider reported.
That means there will be fewer low-mileage cars making their way to the used car market. And fewer used cars but an unchanged demand will keep used vehicle inventory low and their prices relatively high.
Used car prices could fall further in the months ahead as new car inventories continue to build, Markus said. However, the reduced new car production of the last three years could stall the price of used cars as inventory supply falters
“The supply issue is still grim,” Markus told CNN. Because of that, “I don’t think we’re getting down to 2019 levels.”
