Are Used Car Prices Dropping?
The current trend is showing a decrease in used car prices. Not only that, but new car sales are also showing a decline while both have increased in sales. For the month of July used car prices dropped by 1.3% and by 5.6% year-over-year.
Used car prices at wholesale auctions have also shown a similar trend in reduced prices. According to Manheim's Used Vehicle Value Index, which tracks the auction market, used vehicle prices declined 1.6% in July. Compared to a year ago, the index declined for the 12th consecutive month, based on Manheim's data.
Though we are clear of the woods just yet. The pandemic made an impact on the sale of cars as well as the retention of cars by drivers. Along with material and parts shortages, car repair costs also went up drastically.
“From July 2020, there were 22 straight monthly double-digit increases through April 2022; we’ve had just six double-digit declines since October last year, with only four of them consecutive,”
- Chris Frey, senior manager of economic and industry insights for Cox Automotive said.
It will still be some time before we can say with confidence that prices are truly normalizing. For now, the trend seems to be that used car prices are on the decline along with more customers buying both used and new cars. There are still fluctuations in the economy that may influence car prices again. Car repair prices have not gone down which could ultimately influence buyers' behavior. Compared to July last year, vehicle repair costs increased 12.7% in July.
Several industry-specific trends can impact used car prices. Here are a few examples:
- New car sales: When new car sales are strong, there is typically an influx of trade-ins, increasing the supply of used cars. This increased supply can put downward pressure on used car prices.
- Vehicle depreciation: Cars generally depreciate over time due to factors such as age, mileage, condition, and market demand. Depreciation rates can vary across different makes and models, and understanding the depreciation curve of a specific vehicle can help predict its future value and potential price drop.
- Technological advancements: Rapid advancements in automotive technology can lead to older models needing to be updated. As newer features and technologies become more prevalent, older vehicles may see a decrease in demand and subsequently experience price depreciation.
- Fuel prices: Fluctuations in fuel prices can influence the demand for certain types of vehicles. When fuel prices are high, there may be increased demand for fuel-efficient cars, which could affect the pricing of used vehicles with better fuel efficiency.
- Consumer preferences: Changes in consumer preferences can impact the demand for specific vehicle types, such as sedans, SUVs, or electric vehicles. Shifting market preferences can cause fluctuations in used car prices as demand for certain types of vehicles rises or declines.
- Vehicle recalls: If a particular make or model experiences a significant recall due to safety or performance issues, it can affect consumer confidence and subsequently impact the resale value of used cars of that specific model.
It's important to note that these trends can vary by region, as market conditions and consumer preferences differ across different locations. Keeping up with industry news, and market reports, and consulting local automotive experts can provide more detailed and region-specific insights into the factors influencing used car prices.