Used Car Prices are Dropping, Is it Time for You to Buy?

Used car prices started high last summer and kept going up from there. It seemed like we weren’t going to get any relief with higher prices.

Some areas reported pre-owned models with prices higher than when they were new, which never seems right. Thankfully, the prices of these used vehicles are starting to come back down to a more realistic level. With this decline in prices, is the time nearing for you to buy that used vehicle you’ve had your eye on but couldn’t quite get past the cost?

What Caused the Price Increase?

We never expect the automotive market to be turned upside down, but that’s precisely what happened over the past couple of years. The COVID-19 pandemic struck and the world had to shut down for several weeks. Even though America was one of the first countries to reopen, many others did not, which caused delays in the supply chain to automakers. This delay, coupled with an increase in sales of electronic gaming systems resulted in a troublesome situation for automakers and dealers around the country. The only stable part of this industry was found in the used car market.

The Pandemic Followed Record Sales

Throughout the 2010s, automakers sold more cars each year than they ever had before. Many companies prepare for a predicted drop in sales by cutting low-volume, low-margin models from their lineups. Unfortunately, no one could have predicted the pandemic that struck. Many automakers began canceling orders with suppliers to ensure parts that weren’t immediately needed weren’t shipped. Without knowing how long the pandemic would last, automakers were scrambling to figure out what to do next while dealers found ways to sell cars in a no-contact manner. This made for a big problem.

The Gaming Industry Impacted the Auto Market

It’s been said many times, but we’ll recap, when automakers canceled their orders for semiconductor chips, the dominos began to fall. The increased sales in gaming systems meant these chips were going to those companies instead of automakers. Once production resumed at automotive factories, necessary supplies, including semiconductor chips, were scarce. The fact that automakers couldn’t build vehicles because of a lack of supplies meant dealers had to find another way to sell cars. This is where the increased prices began to hit the used car market, which peaked last summer.

Dealer Inventory Changed During 2021

Throughout most of last year, many dealers around the country operated with car lots that were mostly empty.No amount of moving these vehicles could fill the empty spaces, but some used cars could. The demand for a variety of used car models to sell was so high that the average price of a used vehicle increased by 43 percent last year. This increased price showed up in the overall price consumers paid for the cars they drove home. While dealers now had a way to fill their empty spaces, they were selling used cars quickly, which continued the increased price for pre-owned models.

The Prices are Coming BackDown

During the first quarter of 2022, we see prices of used cars dropping. While we are not at the pre-pandemic pricing level just yet, the upside-down nature of the market is no longer present. The only part of the auto market to see an increase in used vehicle prices recently was the van market during February. The average price of a used car sold in January dropped $572 per vehicle to $27,633 compared to December of 2021. This price could show us some relief in this part of the market.

We, Will, See a Slight Uptick in the Price

Even though the price of used cars has dropped during the first quarter, we must keep in mind that tax return season is upon us. This means an increase in prices as more people will flock to dealers to purchase the vehicle they want to drive. While it seems like dealers are taking advantage of customers, an increase in prices coupled with some serious incentives usually makes for some good deals when consumers head to their local dealer for the used car they want to drive.

Could Higher Gas Prices Cause Issues?

Certainly, the fact that gas prices have soared ever since Russia invaded Ukraine could be a problem. These increased prices might have many customers seeking out electric models or hybrid variants to save fuel. The demand for these efficient vehicles could be enough to make prices soar for that area of the market. Hopefully, we will see some relief in the price of gas soon, which would make it affordable for shoppers to drive nearly every type of used car available to them, not just the ones that get the best gas mileage.

Are There Enough Used Cars to Go Around?

This seems like a funny question because we had the opposite issue only three years ago. Prior to the pandemic, there were too many used cars in the market, which created a backlog on these models. Today, we might not have enough inventory left to fill the new car lots with used models. While we wait for automakers to bring things back to normal, the wholesale supply of used cars is now at 26 days, which is two days fewer than in February. This lack of inventory might send prices back to where they were last summer.

Should I Buy a Used Car Now, or Continue to Wait?

You might want to wait a month or two and let the tax refund season pass you by, but now is probably as good a time as any to buy a used car. It’s hard to predict how much longer the Russian invasion of Ukraine will impact the auto industry. We also don’t know when supplies of semiconductor chips and other necessary parts will normalize for automakers. Finally, we’re uncertain how long the used car inventory in the market will last without enough new cars for dealers to sell.