Used-car prices in the United States have gone back up again in March, after easing for months.
The average used-vehicle price was gradually leaning toward affordable again for millions of Americans for almost a year.
Although the relief was relatively slight, many car buyers benefited from the price decline.
The average used-car purchase had dropped from $31,400 in April 2022, by 14 percent, to $27,125 early this month.
The noticeable decline in used-vehicle prices toward the end of last year has been nearly cut in half in 2023, as inventories remain low due to disruptions in new vehicle production, according to Cox Automotive.
The slowdown in newly available vehicles during the pandemic has finally hit the used-vehicle market, with no relief expected anytime soon.
Simple supply and demand problems led to the vehicle shortage, causing inflated prices.
Prices Go Up as Used-Car Inventory Remains Low
As the supply of used vehicles failed to keep up with strong consumer demand, prices are now creeping up again, with more increases expected ahead.“We witnessed strong retail demand in January and early February, which surprised some dealers who were tight on inventory. The early bounce sent many dealers into the wholesale market to restock inventory, and that has driven up wholesale prices,” Jeremy Robb, Cox Automotive’s senior director of economic and industry insights, told Yahoo Finance earlier this month.
The Manheim Used Vehicle Value Index, which is published by Cox Automotive and tracks wholesale used-car prices at dealer auctions, saw used-car prices rise up by 8.8 percent this year through mid-March.
Prices are trending higher, with the index heading back toward a record of 257.7 basis points set at the start of 2022. It was 238.6 as of mid-March, after hitting a low of 217.6 last November.
The Manheim Index’s 3.7 percent jump last month was the largest increase on record, since a 4.4 percent rise in February 2009 during the Great Recession.
“It looks like it will persist for some time,” said Chris Frey, senior industry insights manager at Cox Automotive.
“It’s really a function of this hole in new production, creating a dynamic where wholesale or general used values are higher because there are millions of fewer new vehicles that would eventually turn into used.”
Cox Automotive does not expect the total number of used-car sales to return to pre-pandemic levels, of about 38.2 million units, until at least 2026, Frey said, when he expects production issues to ease.
The lack of new inventory has priced so many buyers out of the new-car market that there have been fewer trade-ins arriving on used-car dealer lots.
The average new vehicle in the United States in February sold for nearly $48,000, according to Edmunds, which is beyond the reach of most consumers.
Meanwhile, fewer used vehicles are coming off leases or being off loaded by rental car companies, which has exacerbated the shortage.
Average listings for used car prices have edged up by about $700 in the past month.
Alex Yurchenko, chief data officer for Black Book, which tracks prices, told the Associated Press that prices should be expected to keep rising at least into the summer.
Wealthier Buyers Are Expected to Buoy the Auto Market
Charlie Chesbrough, a senior economist at Cox Automotive, also expects used-vehicle prices to rise through summer, before slightly easing due to the normal late-year depreciation cycle.He said that many of these wealthier buyers were paying in cash to avoid higher interest rates.
The average loan rate on a used vehicle is now 11.3 percent, up from 8.1 percent, when the Federal Reserve started raising interest rates a year ago, according to Edmunds.
Due to high demand and low supplies, Chesbrough does not forecast vehicle sales tumbling even if the U.S. economy were to fall into a recession.
He believes that although many buyers with lower credit scores would be pushed out of the market, sales will remain solid.
Chesbrough also does not believe that vehicle prices will back go to their pre-pandemic levels, as used-car inventories are expected to remain low for the foreseeable future.
Auto Production Still Reeling From Lack of Chips
The end of government stimulus checks, which led to a boom in car purchases, has now ended.The massive growth in demand generated by the stimulus caused the average used-vehicle price to grow more than 50 percent above pre-pandemic levels, leading to the inventory shortage.
Despite easing over the past year, the average cost of a used vehicle still remains at about 35 percent above the pre-pandemic mark, when it was at $20,425.
Many automakers used their tight supply of computer chips to build more profitable SUVs and pickups, which lowered the production of affordable new models and pushed buyers into used-car lots.
Although the supply of new vehicles has improved, the shortages continue, as the persistent lack of computer chips have reduced the amount of new vehicles to meet demand.
Sales of new vehicles last year were about three million below pre-2020 levels, which have hurt both the new and used car market, as the number of turn-ins have declined.
Auto loan rates are expected to continue rising, as the Fed sticks to its plan raise interest rates to combat inflation.
