Used car price trends in 2023 have been difficult to keep track of. One week prices are going up, the next week prices are falling down.
Don’t worry, CarEdge has got your back.
Whether you are in the market to buy a used car, or are thinking about selling a car you already own, we’ve crunched the numbers so that you can clearly understand what trends are happening in the used car market right now.
Buckle up, let’s explore these essential insights together.
Used Car Prices Are Falling (Slowly)
A new analysis from Cox Automotive shows that used car sales are slowing, and at the same time available used vehicle inventory is diminishing.
The multi-year chip shortage that reduced global production of new vehicles in 2021 and 2022 means there are fewer 1 and 2 year old used cars in the market today. This lack of supply is keeping used car prices elevated even as the average interest rate on a used car reaches 13.5%.
Nationwide, used car supply stands at approximately 2.2 million units, a decrease of 256,000 compared to June of the prior year. Quality used cars are still fetching a premium at dealer auctions, however they are fewer and further between.
What CarEdge’s Ray Shefska Thinks
What goes up, must come down. But when it comes to the used car market of the past 24 months that hasn’t been the case. Where do things stand in mid-2023? “I think the used car market is in flux,” notes Ray, “we are seeing a steady decline in wholesale values at the auctions that is barely reflected on the retail side.” He further explains that quality late-model used cars remain in short supply and still command high prices, stating that “those retail prices won’t be dropping much, if at all, in the near term.”
Cheaper used cars are dropping in price most
Used car price trends in 2023 look very different across the various segments of vehicles that are sold in the United States. Over the past 24 months we saw major increases in price for “cheaper” used vehicles ($10,000 or less), as consumers looked for any car that could reliably get them from point a to point b without breaking their bank.
Interestingly today, the largest dips in wholesale used car prices are being seen in lower-quality cars and “cheaper” vehicles. This could signal some relief for consumers who are looking for something reasonably priced. “The lower quality cars at the auctions are what are seeing the real declines in values, so whatever retail future price drops that there are will probably be reflected mostly in this group of vehicles,” Ray explained.
This trend coincides with auto repos increasing significantly. During the pandemic very few vehicles were repossessed. Now, as auto loan delinquency rates increase, we are seeing the number of repo vehicles showing up at dealer auctions increase as well. Typically repossessed vehicles have been treated a bit more “roughly” than other sources of used vehicle inventory (lease returns for example).
Higher Used Car Interest Rates
Financial institutions are tightening their lending guidelines in response to higher loan delinquency rates. This shift will significantly influence overall sales as it will be more difficult for consumers to find deals within their monthly budget or get approved for financing.However, those with the capacity to purchase the more expensive, higher-quality used cars are likely to continue doing so due to their financial capability to weather these lending challenges. “Those who can and do buy the overpriced newer used cars can and will continue to do so because A) they can put more money down to qualify for a loan and B) they have the ability to be able to afford the higher payment.”
On the flip side, those aspiring to purchase older, cheaper cars may encounter obstacles in qualifying for loans under these stringent guidelines, potentially precipitating a steeper price decline in this vehicle category. Looking forward, high retail prices for low-mileage vehicles a few years old are expected to persist due to ongoing customer demand and limited availability. “I believe that high retail prices will continue well into the future for the 1,2 and 3-year-old lower mileage vehicles because of continued high customer demand and limited availability. I believe that we will still be complaining about high retail prices for quite some time.”
Prices: High But Dipping
Although the average listing price for used cars in America has dipped 3% since this time last year, they are still near all-time highs. To give some perspective, the average used car price is 39% higher than in 2019 and into pre-pandemic 2020. This dip may represent a relative ‘cooling off,’ but used car prices remain far from pre-pandemic norms.
While retail prices for used cars have dipped slightly since the beginning of 2023, wholesale prices have stabilized, returning to where the year began. This shift might hint towards an equilibrium in the market after a period of intense fluctuations.
Used Inventory Averages Higher Mileage
An interesting trend is the rising mileage of used car inventory. This change signifies that more drivers are holding onto their cars for longer, a response to continually increasing new car prices that outpace overall inflation. As the cost of buying new becomes less attainable, owners are maximizing the value of their existing vehicles.
New vs. Used Electric Vehicles
In the world of EVs, things are always changing. Over the past year, the gap between new and used EV prices has narrowed significantly. The rise in new EV inventory, up by a staggering 342% year-over-year, coupled with multiple price adjustments from Tesla, has led to a major correction in the used EV market.
In Q2 of 2023, the average price of a used EV stands at $41,630, quite a bit lower than the $50,000 average a year ago. However, considering the unavailability of federal incentives for used EVs over $25,000 and the abundance of local, state and federal incentives for new EVs, many buyers may still find buying a new EV to be their best bet. For a complete list of eligible cars, check out fueleconomy.gov.
The Market in Perspective
Even though used car prices are experiencing a slight drop, it’s not enough to counteract the significant increases we’ve seen over the last few years. However, with new car inventory increasing rapidly, we’re witnessing the return of buyer incentives, leading to potentially better deals. Moreover, buying new often comes with the added benefit of a full manufacturer warranty.
Stay tuned to CarEdge for the latest insights on car buying trends as we continue to monitor these evolving market conditions. Whether you’re considering a used or new vehicle, we’re here to help you make the most informed decision. Looking for behind-the-scenes market data for new and used vehicles? CarEdge Data is the perfect plan. Ready to dig deep with your top picks? Run a CarEdge Report for the most insights you’ll find anywhere.
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