Used-vehicle prices at wholesale, dealer-only auctions in December 2021 ended the year an eye-popping 48.1% higher on average than December 2019, before the COVID-19 pandemic, and up 34.8% vs. December 2020, according to auction firm KAR Global.
Retail used-vehicle prices don’t follow wholesale auction prices 1-to-1, but wholesale auction prices are an indicator of what franchised, new-car dealers and independent, used-car-only dealers pay for a major source of used-vehicle inventory. Those increases obviously affect the prices that get passed along to consumers.
Besides auctions, dealers also get used-vehicle inventory in the form of trade-ins and lease returns; from buying vehicles directly from consumers for resale; and also from dealers selling to one another.
Prices are up because used vehicles are in short supply, relative to demand. That’s partly a reflection of lower new-car production. COVID shutdowns in 2020, and an ongoing computer chip shortage starting in 2021 have dug into new-vehicle production.
Obviously, fewer new cars produced in 2020, for instance, means fewer 2-year-old used cars in 2022.
That’s a direct effect of the new-vehicle market on the used-vehicle market, but not the only one. Consumers facing the new-vehicle shortage may react by postponing their new-vehicle purchase when they can’t find what they want in stock, and that means fewer trade-ins.
Or, consumers intending to buy a new vehicle may switch to a used vehicle instead, to find a suitable substitute for the new vehicle they want. They may also switch to used, to avoid new-vehicle prices, which are also at or near record levels. Either outcome puts additional pressure on used-car supply vs. demand.
On the positive side for consumers, high trade-in values also make it easier to afford a new vehicle, even though new-vehicle prices are inflated, too.
The average wholesale auction price for all used vehicles was $16,026 for December, an increase of $5,204 over December 2019. Used trucks were much higher on average, at $18,638 in December, KAR Global said. That was 44.8% higher than December 2019.
On average, used cars were priced lower in absolute terms but passenger cars experienced an even greater percentage increase. The average used car was $12,084 in December, up 48.6% vs. December 2019.
Tom Kontos, chief economist for KAR Global, said wholesale prices declined very slightly in consecutive months, down less than 1% each, from October to November 2021, and from November to December. He said used-vehicle retail sales also softened at year-end but, “may have been stronger if used vehicle supply was more plentiful.”