When Will Used Car Prices Drop?
The market is getting less overheated, but it'll take a while for prices to settle down
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If you’ve driven by a car dealership lately, you’ve seen that the lots are eerily empty—and they’ve been that way for months.
As Ed Kim, president and chief analyst for the market research firm AutoPacific, points out, supply chain issues have starved the new car supply at a time when plenty of Americans have the means and desire to buy a new vehicle. With the limited inventory, dealer markups on the new cars that are available average 9.9% above the manufacturer’s suggested price shown on the window sticker. No wonder many buyers are turning to the used car market.
“The resulting higher demand for used cars has pushed used car prices up—way up,” Kim said. Naturally, this is causing many consumers to wonder: when will used car prices drop?
“Late-model used cars are increasingly scarce, and those that remain demand top dollar.”
In fact, according to iSeeCars.com, a vehicle search site, used-car prices are up an average of 30.4%, or $8,032, year over year.
Why Are We Still Having Supply-Chain Issues?
According to Sam Fiorani, vice president for global vehicle forecasting at AutoForecast Solutions, the industry lost its place in line for semiconductors due to reduced vehicle production and increased demand for chips in other products.
Popular features in new vehicles like infotainment screens and heated steering wheels rely on microchip controls. While some automakers have been delivering new vehicles with items such as heated seats and HD radio missing—most can be retrofitted as chips become available again —the reduced demand still outstrips supply.
“Chip producers are reluctant to provide manufacturing space for less-profitable automotive- grade chips in place of the highly profitable chips needed for mobile devices, pushing the supply of automotive chips further behind the demand for them,” Fiorani said.
However, Fiorani and other analysts point out, there is a hint of light at the end of the tunnel.
Used-Car Prices Are Starting to Drop
Kelley Blue Book recently noted that despite year-over-year used car prices remaining high, the March average for used car prices was down $362 from February. Even so, a noticeable drop is still likely to be several months away, according to Fiorani.
“Dealers are making money on new and used vehicles unlike any time in recent memory, so they will keep this going as long as possible,” he said.
When Will Used Car Prices Go Down and Be ‘Normal’ Again?
The short answer: We probably won’t see normal pricing on used vehicles for a couple of years. As Kim points out, production losses caused by the pandemic aren’t the only problem.
“Used car prices will drop as new car inventory starts returning to normal levels, but with continuing supply chain issues caused by COVID-related shutdowns at supplier plants in Asia, as well as Russia’s invasion of Ukraine, this isn’t expected to start happening until 2023,” he said.
With constrained inventories, car sales in the U.S. are expected to be roughly the same in 2022 as they were in 2021, Fiorani said. That’s about 2 million units short of the 17 million new vehicles sold on average during each of the five years prior to the pandemic.
“Getting production back above 16 million units will get inventory levels into a more reasonable range, but that’s not expected to happen until 2023 or 2024.”
