Used Car Prices Are Finally Starting to Stabilize
The red-hot market may be cooling off.
The global pandemic and the ensuing chip shortage have played havoc with all manner of industries, with the automotive market hit particularly hard. Prices of new cars and used cars alike have skyrocketed, with cars in such scarce supply that some used models have eclipsed their original sticker price. However, relief may be in sight, as Kelley Blue Book reports.
Analysts have dug into data from the Manheim Used Vehicle Value Index, which covers the prices that dealerships pay for used inventory. It's a rich source of information, containing granular details of vehicles, from mileage to model spec and of course, the price paid by the dealer on the wholesale market.
Results for January finally indicated that wholesale prices are leveling off, with numbers showing no real rise compared to those for December. The overall index stands at 236.3, a full 45% above last year's results, so prices are still quite high, but it's the first indication that the continual rise may now be leveling off.
The index itself is merely indicative of pricing trends, rather than directly informative on its own. As a better guide, the average used car price hit $28,205 in December, a huge 42% rise compared to prices in December 2019, before the world changed.
The leveling off may be partially due to an uptick in used vehicles on the market. Notably, in December, dealers reported that they had 51 days worth of inventory on average—an industry measure of how long a dealer could sell cars for if they stopped receiving new vehicles. The number hadn't crossed 50 days since January 2021, amidst difficult trading conditions caused by ongoing supply issues.
Regardless, with prices still high, some potential buyers may have been putting off purchases. The volume of used sales was down 0.8% year on year last month, a small but measurable amount.
If inventory continues to creep up and customers remain reticent to purchase at the current inflated prices, a relatively swift correction could be in order as dealers mark down vehicles to get cars flowing through lots again. If you've been hanging out for a better deal on a used car, you may not have much longer to wait. Take that with a grain of salt, though; in these times, it's impossible to predict what's just around the corner!
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