Used Vehicle Prices – Supply / Demand Drives Increased Prices
The perfect storm of COVID and the microchip shortage caused a significant drop in new vehicle production which has ultimately led to historical low used vehicle inventory levels.
New-vehicle inventories plummeted from 3.8 million in the spring of 2020 to 820,000 by the fall of 2021. This drop in production equated to the industry selling 8.1 million fewer vehicles from 2020 – 2022 compared to 2017 - 2019.
This means 8.1 million fewer vehicles ended up in the used vehicle market.
According to Cox Automotive, used vehicle inventories are near the lowest levels in 10+ years at 2 million vehicles, down approximately 1 million vehicles from the spring 2020.
This lower supply and higher demand have driven the used vehicle prices 35% higher than pre-pandemic averages. Before Covid, the average used car cost was $19,827 and had 65,000 miles. Today, the average used car price is $26,686 and has 71,000 miles. Used-vehicle buyers are paying 35% more for a vehicle with 9% higher miles!
Additionally, automakers have transitioned their business models from volume focus to profit margin focus and are producing a more expensive mix of new vehicles. This results in a notable reduction in the affordable segment of new vehicles: compact sedans (-2.6 million), midsize sedan (-1.8 million), and compact SUV (-1.6 million)
When will “Normal Pricing” Return?
Used car prices are influenced by various factors, including supply and demand dynamics, economic conditions, and market trends. While the COVID-19 pandemic caused disruptions in the automotive industry, resulting in fluctuations in used car prices, it's challenging to pinpoint an exact timeframe for when prices will return to pre-pandemic levels.
Several factors can influence the timeline for used car prices to stabilize, such as the recovery of the global economy, availability of new car inventory, consumer demand, and other unforeseen events. It's advisable to consult your fleet management expert, follow automotive market trends, and stay informed about economic indicators to get a more accurate understanding of when used car prices may normalize in your specific region or market.