Towards the end of 2021 and the beginning of 2022, used car prices rose to all-time highs across the globe. One of the main factors for the high prices was that there was such a high demand for used cars. During the COVID-19 pandemic, many consumers were looking to save money by purchasing used cars instead of buying brand new vehicles. This rise in demand for used cars caused used vehicle prices to increase, making it a seller’s dream.
Another factor that contributed to the average used car price increase was the shortage of materials used to build new cars. New cars became more expensive to purchase, which drove customers to look at the used car market instead.
The prices of wholesale used vehicles dropped 1 percent in April 2022. In December 2021, the used car prices reached a peak where it was 42 percent higher compared to December 2019, just before the pandemic struck. In April, the Manheim Used Vehicle Value Index by Cox Automotive showed a used car price decline which has been consistent since February this year. Although the prices are still higher than normal, industry experts believe that prices will soon return to somewhat normal pricing patterns.
April is the time of the year when people receive tax refunds. This contributes to car sales spikes and is why car prices are usually higher in April as well. However, something different was happening in April 2022.
Retail sales of cars saw a decline of 13 percent which is down 21 percent year over year. There are also more used cars on the market today. Therefore, sellers are being forced to drop their prices in an attempt to keep stock moving with demand slowly easing up.
It is difficult to say how long used car prices will stay low due to the fact that there are still supply chain issues with materials used to build new vehicles. The major factor that caused these supply chain issues was bottlenecking of the materials due to COVID-19 and the lockdowns/restrictions that followed.
To start, there was less production and the high demand for materials such as microchips was hard on the automobile industry. Industry experts say that the microchip shortage will continue into 2023. However, it has started to pick up even with the consumer demand and low factory output of the few manufacturers worldwide.
Although these factors are not directly affecting used cars, they affect the auto industry as a whole because the demand is then shifted to the used car market. Although the demand for used cars has begun to shift, there is no evidence that the drop in used car prices will last long. This can only be guaranteed after the supply of materials, like microchips, is able to meet consumer demand.
The best way to know how the used car market is moving is by watching used car prices month over month and seeing if they are increasing or decreasing. While there has been a constant decline since April, there is still a chance that used car prices to start going up again.
Are you in the market to purchase a used car? First, figure out what kind of cars you are interested in. Take a little time every month to search different used car dealers and write down the average prices every time you look. Try and keep the cars within the same year and mileage range so you can compare prices more accurately. Once you have data from a couple months, it will be easier to analyze whether used car prices are going up or going down.