The used car market value has been astronomically high since the beginning of the pandemic. While the prices have gone down a bit, they are still extremely high, and this elevated market is expected to be here to stay.
One hope consumers have to hold on to is that it is expected for used vehicles to follow the normal seasonal pattern for sales prices. Typically the used vehicle prices will peak in the spring, which is right around the tax rebate time, and go down as the year progresses. Because of this, holidays throughout the year and the end of the year would be the best time for the consumer to purchase a used car.
As for the quarter four numbers, the chief economist for Cox Automotive believes that the retail numbers will show more declines than we have seen all year. The problem with comparing the quarter four numbers with the quarters previously, is that there was so much more demand than supply of used vehicles, so the used vehicles were appreciating in value, which is opposite to what has happened in previous years.
According to used-vehicle auction data from the ADESA U.S. Analytical Services, the wholesale prices at dealer-only auctions have gone down through September of 2022 for four months now since its seasonal peak in May. The average price at these auctions in September was $15,543 per vehicle which is down 1.3% compared to August of 2022. That number however is still up 39.3% when compared to the pre-pandemic average of 2019.
It’s easy to see that the problem of high prices for new cars is caused by the shortage of computer chips hurting the supply, therefore increasing the demand for them. Used cars however do not face the same issues. One cause was the closure of the assembly plants and dealership showrooms hurt the supply of used cars. This closure meant people weren’t buying new cars. In addition, with fewer new cars available, fewer people were trading in their cars to purchase the new vehicles.
Furthermore, those that would typically purchase new cars were settling with the high end used cars, leaving less used cars to pick from. This is caused by the extremely high purchase price of new vehicles, which reached a record high $47,173 in July of 2022. This high purchasing price saw monthly car payments exceeding $700, with more than 12% of customers financing a car paying more than $1,000 a month. These astronomically high figures are starting to trend down, but are still 33% higher than when the pandemic hit.
While the reports have been promising as they are beginning to trend down for the first time since the pandemic hit, it is unlikely that we will ever reach the market that used cars were in before the pandemic hit. The demand for used cars has hurt the supply of them, causing the prices to skyrocket. This is due to a number of factors like the low inventory of new cars, people being priced out of the newer models, and people who would normally buy new having to purchase a used vehicle – introducing a new customer to the market that would not have been there normally. All of these factors culminate in the higher purchasing price for used vehicles.