Used-vehicle values are down over the last few consecutive months, although they’re still far higher than they were before the COVID-19 pandemic, and there are a lot of reasons to expect used-vehicle prices will remain elevated, possibly for years to come, analysts said.
The good news is, used-vehicle prices are beginning to conform to a normal seasonal pattern, where used-vehicle prices peak in the spring, around tax-rebate time, and then lose value as the year progresses.
For consumers, there’s at least some hope for used-vehicle shoppers that there could be some relative bargains in late 2022, analysts said.
“This fall is going to be inventory cleanup time,” as dealerships sell off used vehicles they stocked up on earlier, said Jonathan Smoke, chief economist for Cox Automotive.
“I expect retail to show more declines in Q4, than we’ve seen all year,” he said of used-vehicle values, in a conference call earlier this month.
For a while last year, there was so much demand relative to supply that used vehicles were actually appreciating in value, something completely contrary to historical experience.
This year, according to used-vehicle auction data from ADESA U.S. Analytical Services, wholesale prices at dealer-only auctions have declined through September 2022 for four months in a row, since a seasonal peak in May.
In September, used-vehicle, wholesale auction prices averaged $15,543 per vehicle — down 1.3% vs. August 2022, and flat vs. September 2021. However, that’s up 39.3% vs. pre-pandemic September 2019, said Tom Kontos, chief economist for ADESA Auctions.
It’s obvious how the pandemic, and a not-unrelated shortage of computer chips, have hurt new-vehicle sales and production. What’s less obvious is the follow-on effect on used vehicles.
Early in the pandemic, North American auto assembly plants were closed for weeks. At the same time, dealership showrooms in markets representing a majority of new-car sales were closed, to try and limit contact and contain the pandemic. Those closures were followed by a slow and lengthy restart.
Besides interrupting new-car sales, those closures also hurt used-vehicle availability in a couple of ways. One, with fewer new vehicles available, fewer customers could trade in their used vehicles for new ones. Two, what used vehicles were available experienced greater demand, as some new-car shoppers settled for used. Those factors drove up used-vehicle prices, too.
Finally, and most obviously, the slowdown in new-vehicle production causes an exactly equal shortage of used vehicles in the future. Fewer new 2020 models built in 2019 and 2020 means fewer used 2020s, forever.
Meanwhile, higher interest rates logically will drive even more new-car shoppers to seek used cars instead, to find an affordable alternative. That’s going to support higher used prices, too.
So, used-vehicle prices may moderate, as new-vehicle availability improves, and as more trade-ins become available for purchase as used cars. But used-car prices are not likely to experience a sudden drop.