Used car sales are much stronger than they were one year ago. Car buyers aren’t phased by much higher interest rates, economic uncertainty or exorbitant new car prices. What do healthy sales mean for car buyers in the 2023 spring car buying season? Will used car inventory keep up with demand, or will a shortage send prices higher? Here’s what the latest data tells us.
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Used car shortage is worsening in 2023
Is there a car shortage in 2023? It depends what you’re in the market for. Semiconductors aren’t the problem this time around. Car prices were so high for so long that as prices finally dropped, demand shot through the roof. The supply of used vehicles is lean as the spring selling season seems to be kicking off early this year, according to new data from Cox Automotive.
At the end of January 2023, there were 2.21 million used cars for sale on dealer lots across America. That’s 100,000 less than inventory in December 2022. Inventory remains down 14% from one year prior.
People keep buying cars, and that’s reflected in how quickly days’ supply has dropped. At the end of January, the days’ supply of used cars was 48 days, down from 57 just one month prior. Analysts from Cox Automotive note that many dealers are scrambling for inventory, and that’s driving up prices at wholesale auctions.
Affordable cars are disappearing
The average price for a used car in America is $26,510 in 2023. Here’s some perspective: Used car prices have risen 33% in the past five years. A decade ago, the average used car sold for ‘just’ $15,900. If you’re in the market for a used car under $15,000, expect VERY stiff competition, and slim pickings. Here’s how days’ supply breaks down for different used car price points, according to the latest data.
|Vehicle Price||Days' Supply|
|$10,000 - $15,000||42|
|$15,000 - $20,000||46|
|$20,000 - $35,000||50|
The brands with the lowest used inventory were Toyota, Acura, Honda, Nissan, Mazda and Lexus. Toyota had the lowest days’ supply of used vehicles at 39. Japanese automakers have been hit particularly hard by post-COVID supply chain problems, which has forced more drivers to their respective pre-owned markets as new inventory remains slim.
Retail price update – Spring 2023
After reaching a peak in June of 2022, used car prices steadily fell for seven consecutive months. That general trend continued into 2023, but reversed sharply beginning in late January. Not surprisingly, lower prices spurred higher demand for used cars.
In a classic example of supply and demand economics, the used car market has reached a new normal in 2023. The volume of used car sales is 13% higher than it was at this point last year. Used car inventory industry-wide is now lower than at any point in all of 2022.
Wholesale auctions signal a sustained bump in prices, at least through tax refund buying season. Here’s a look at the latest Black Book wholesale auction price trends in March:
For the past two weeks, wholesale used car prices have increased. Sports cars and crossover SUVs have gained value the quickest.
As usual, there’s a 2-4 week delay between auction price trends and retail prices. As of February 21, the market average of retail used car prices remained unchanged.
When will used car prices drop?
The sudden spike in used car prices won’t last, but don’t expect 2020 prices to return. CareEdge’s own Ray Shefska had these market insights to share.
“I expect to see used car values and asking prices to remain somewhat elevated throughout the spring months of March, April and May with prices beginning to decline in June. I suspect that even though wholesale values at the auctions will continue to rise, retail asking prices will probably remain somewhat flat in order to keep the deal structure within the lending guidelines set by the banks.”
Here’s what Cox Automotive Chief Economist Jonathan Smoke had to say about where things stand, and what’s to come.
“The principal reason for improving used retail sales early in 2023 is the price decline that was a product of last fall’s wholesale price drops. Now dealers are restocking at higher prices, and driving prices even higher, so the retail price trend will reverse soon. It’ll be tough to maintain positive sales momentum with higher prices, especially as rates keep rising.”
There’s a lot of pent-up demand for affordable cars. Factor in inflation, and it becomes clear that prices are never going back to where they were in 2020 and prior.
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