How Fast Will Used Car Prices Drop?

Could we finally see the light as used car prices continue to drop month over month compared to last year? It’s possible, but not quite enough.

When the COVID-19 pandemic shut down automotive production around the world, inventory levels dropped and the used car market became the hotbed of vehicle purchases. Unfortunately, the pandemic was only the beginning of challenges for automakers who have faced various supply shortages, most notably the shortage of semiconductor chips. As inventory levels improve, prices of used models are falling, but not at the same rate as they rose during 2020.

The price increase was hot and fast

Its hard to find another time in the history of the automotive market when prices increased as fast as they did from April 2020 to January 2022. This period marked an 88% rise in the price of used vehicles, which meant that many used models were being sold at or above the price of the same vehicle when it was new. The shortage of new and used models create an incredibly uneven supply and demand scenario which allowed many dealers to set their own prices and disallow discounts and rebates.

How fast has the price fallen so far?

A recent report shows an incredible 14.9% used car price drop compared to last year. This is a strong decrease, which could spell good news for consumers. This price change from the fall of 2022 to now marks that largest price decrease since the pandemic. Other months have also shown lowered used vehicle prices, but those decreases were small in comparison to this most recent report. Although these prices should continue to fall, they won’t drop at the same rate as the went up and we might never see used cars sold at the same low prices we did prior to the pandemic.

Are lowered prices being offset by higher interest rates?

Some might look at the increased interest rates coupled with a decline in used car prices and think the tow are a wash. Seeing used car prices come back to a more normal level is a good sign economically. Now, if we could see interest rates decrease, these used vehicles might be more affordable for the average consumer. Although prices have decreased, the story isn’t a good one for everyone involved, especially dealers.

How are car dealers impacted by used car prices declining?

You would think the used car prices dropping to lower levels would be good for everyone but that’s not the case. If prices decrease a rapid rate, car dealers could have trouble making profits on the vehicles sold. Dealers pay wholesale prices and when a car dealer pays a higher wholesale price than the market-suggested retail price when the vehicle has only been on the lot for a month, they lose out. Because of this inequality in the market, some dealers are working to hold on to higher prices of used vehicles to ensure they can profit from ever vehicle on their lot.

How much have used car prices dropped for popular models?

Some of the most popular new and used vehicles are trucks and SUVs. The average pre-owned Chevrolet Silverado 1500 has dropped nearly 11% from November 2021 to November 2022. The Ram 1500 and Ford Explorer have each dropped 9-10% across the same time frame. Looking to other popular models, the Ford F-150 and Toyota Tacoma have not seen as steep a used car price drop, but still have seen the average consumer price decline nearly 6% during the same timeframe. Smaller vehicles, such as the Toyota RAV4 and Honda CR-V haven’t seen large price drops, but still are 2.4-5.3% more affordable than before.

Prices continue to decline, but the average is still high

The increase in used car prices began in 2020, but it didn’t start until there was truly a shortage of vehicles. The average used car price among Cars.com dealers in November 2020 was $18,321. Only two years later, the average price is still 26% higher than this, which means a higher cost to customers and dealers than experienced prior to the pandemic.

New car inventory levels are on the rise

One of the most important factors in the used car price drop is the increase in the number of new models offered at dealer lots. This inventory increase doesn’t mean high-demand new electric vehicles will see price decreases, but most models will be more available and allow used vehicles to show lower sticker prices than they have over the past couple of years. Slowly, we return ever closer to the market norm, but it will continue to take several months to a few years before the supply/demand balance returns to normal levels.

Will the used car price decline impact trade-ins?

Yes, both inventory level increases and declining used car prices will impact trade-ins. Some dealers were looking to customers to trade in their old models while offering them special incentives on new vehicles that could be ordered. Over the past couple of years, trade-ins have hit record-high values. That peak has been hit and now the average value will decrease along with the incentives offered to trade a vehicle. Dealers will still accept trades, but if you’ve been waiting to buy a new vehicle and trade your old one, the time for receiving maximum value out of your old model has passed.

What should used car shoppers expect?

If you’re planning to buy a used car during 2023, you should be aware of the items we’ve covered. You might find lower prices than over the past couple of years, but some models might still be priced higher because of the wholesale price the dealer paid for that model. Interest rates are higher, which could offset the lowered sticker price of a used vehicle. Trade-ins are returning to lower levels, which means the time of maximizing your trade is over. Although we’re nearing normalized levels in regards to used car prices and the expected offerings at dealers, prices are still higher than before the pandemic, and they will likely remain there.