Used car market zooms ahead

While the new vehicle landscape has benefitted from a landslide of inventory and stable demand in the years following the COVID-19 pandemic, a different story is unfolding in the used car market, one defined by resiliency and adaptability in the face of change.

Used Car Prices and Inventory Dynamics

Talking to dealers and market analysts, the consensus has been that the road to recovery for the used vehicle market will be long, with a return to pre-pandemic supply levels not expected until 2027. But here's where it gets interesting:

Despite a production shortfall of 8 million new cars from 2020 to 2022, sales in the used vehicle sector jumped 13.5% in February, with a 10.7% year-over-year increase, according to vAuto data.

And the market is moving fast, with the days’ supply of used cars dropping to 44 at the beginning of March, down from early February's revised figure of 53.?

Here’s the kicker—while tighter supply and higher demand usually lead to higher prices, the exact opposite happened last month. The average listing price for used vehicles fell by 1.6% in the last month. It seems like price sensitivity among buyers might finally be catching up with the market.

What's driving this unexpected shift? Why are used cars getting cheaper faster than new cars?

In my recent interview with Brian Moody, executive editor at Cox Automotive, he discussed how the trends in new vehicle transaction prices could influence the used car market.

“With the abundance of new cars and incentives, it puts price pressure down on used cars. We’ve seen a little bit of lower wholesale prices for some used cars, and that of course will translate to lower prices for used cars.”

Certified Pre-Owned (CPO) Vehicles on the Rise

Let's take a closer look at the numbers, starting with certified pre-owned (CPO) vehicles. These gems are proving their worth. In February, CPO sales were up 2.3%, or nearly 4,800 units, compared to February 2023. This is the strongest February CPO volume since 2020, highlighting growing consumer confidence in the value and reliability of CPO vehicles amidst broader affordability constraints.

Rise of Used Electric Vehicles (EVs)

Electric cars (EVs) are really standing out now, especially considering that prices in the used EV market are falling faster than in any other segment, declining 31.8% year-over-year in February compared to the average price cut of 2.2% according to Cox Automotive. In fact, used EVs might be some of the best deals on the market right now.

Karl Brauer, iSeeCars executive analyst sums it up perfectly:

“Used car shoppers are seeing a bit of a break in vehicle costs, but we’re still well above the pre-pandemic average used car price point of roughly $20,000, with no indication we’re going back to those levels any time soon. A dramatic drop in used electric vehicle values, largely driven by Elon Musk’s aggressive price cuts on new Teslas, reflects how much influence Tesla continues to have on the EV market.”

Bottomline

What we're witnessing is not a surviving but an evolving used car market. The limited supply combined with a shift toward vehicles sends a clear message to industry players; adaptability and strategic foresight are crucial.

So long as dealers continue to show resiliency, employ clever pricing tactics, adapt to consumer preferences, and capitalize on the increasing popularity of mobility, the used car segment will continue to outperform expectations, no matter what the market landscape looks like.

Wishing you a strong close to March!

Jim Fitzpatrick