NEW YORK–Given their rapid rise and fall, used car prices are giving buyers and lenders “whiplash,” according to one new report, which is offering some insights into what is taking place and what is down the road.
As CUToday.info has been regularly reporting, since the start of the pandemic and the resulting disruptions to new car supply chains first sent prices soaring, used car prices posted their largest annual increase on record – up 45% in the 12 months ending in June 2021, according to the Consumer Price Index – before swinging to a 12-month drop of 8.8% in the most recent reading for December, according to data from Edmunds.com.
That was the biggest 12-month plunge in prices for used cars since June 2009, when General Motors and Chrysler were both in bankruptcy proceedings and the economy was hemorrhaging a half-million jobs a month, the New York Times pointed out in its analysis.
What the Data Show
Data from Edmunds shows the average price of a used car purchase in December at $29,533, down nearly $1,600 from the record high of $31,095 reached in April 2022. Today’s average used car price is about the same as the average new car price as recently as 2010, according to Edmunds’ data.
The Edmunds data further shows that while the prices of late model used cars are down only 5% off their peak according to Edmunds, the price of older used cars, those five years or older, have fallen 15% or more from their peaks early in 2022.
“Experts say reasons for the decline include higher interest rates that make it more expensive to finance a car purchase, limiting demand,” the Times reported. “CarMax, the nation’s largest pure used car dealer, has warned that the combination of high prices and high interest rates is creating an affordability problem for many buyers, hurting overall demand.”
The SUV of Reasons
But the leading reason for the drop in used car prices is the increased supply of new cars, according to the report, which reminded the lack of new inventory initially drove up prices on used cars as demand surged. That included rental car companies, which before the pandemic normally bought about 10% or more new cars per year. With limited inventory of cars to sell, automakers essentially stopped making lower-priced fleet sales, and even rental car companies were forced to turn to the used car market.
But all of that, the Times reported, has started to change in recent months as automakers are reporting more supplies of the chips they need, and are producing and selling more cars, including a return of fleet sales. Overall, sales were up 9% in the fourth quarter compared to a year ago, and nearly 6% higher than in the third quarter, according to Cox Automotive.
Good News/Bad News
“This is obviously good news for those wanting or needing to buy a used car, though it can have a negative effect on car buyers by reducing the value of vehicle they hope to trade in,” the New York Times added. “Edmunds shows the average trade-in value in December down nearly $3,000, or 11%, to $22,605, from the record high hit in June of 2022. That drop in the value of trade-ins could also be a headwind on car prices by reducing what buyers are able to pay.”
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