- This is a good time to buy a used car. No, it’s a terrible time to buy a used car. Can be.
- Used car prices began to decline from their pandemic-inspired highs in the latter half of 2022, then began to climb again in January 2023.
- We can’t tell you when is the best time to buy, but we can understand how lower prices pushed up demand and how that pushes prices up again. Where things go from here is unfortunately unclear.
Used car prices fluctuate and rose in January after significant declines over the course of 2022. Used cars have been hot (read: expensive) throughout the pandemic, but things seemed to calm down last year. It’s hard to know what’s around the corner, but at least we can make sense of the past.
Used Car Business Feeling hungover?
Just 10 days ago the New York Times wrote that the pandemic’s used car boom, along with the accompanying higher prices, is “coming to an abrupt end” as the used car business suffers a “brutal hangover.” According to the Times“Americans, especially those on tight budgets, are buying fewer cars as interest rates rise and fears of a recession grow. And improved auto production has eased the shortage of new vehicles. As a result, sales and prices of used cars are falling and the dealers who specialize in them are getting sore.”
December marked the sixth consecutive month of price declines for used cars, according to consumer finance website Nerdwallet, which has written about the drop in used car prices in recent months. In fact, December marked the sixth consecutive month of price declines for used cars, and 2022 ended with used car prices 8.8 percent lower than they were at the start of the year. This is the biggest annual decline in used car prices since June 2009, the last month of the Great Recession, Nerdwallet said.
The direction of the trend changed in January, when wholesale prices of used vehicles rose 2.5 percent (1.5 percent without making seasonal price adjustments) compared with December, according to Manheim Consulting. Manheim issues a monthly used vehicle value index and regular Manheim market reports, and that kind of regular insight allows the group to note that the January price increases “were not typical” and ultimately the index value of three-year-old cars pushed up. 1.2 percent over the past four weeks. In most years, January values reported by the Manheim Market Reports are “usually little changed,” Manheim wrote.
Used cars move faster from lots
The daily sales conversion rate in January was also “above normal for the time of year,” at 59.4 percent. Pre-pandemic, in January 2019, the daily sales conversion rate averaged 57.7 percent. Manheim takes this to mean “Sellers [have] more pricing power than is typically seen for this time of year.” You can also see strong customer demand in other numbers, with Manheim estimating that used retail sales were up 16 percent in January compared to December and up 5 percent year-over-year. Used cars are also spending less time at dealers, with January’s overall average being just 44 days, compared to 56 in December and 60 in January 2022.
So what’s going on here? The ups and downs may have a simple cause. CNBC suggests that all we’re seeing here is a simple play of supply and demand example that allows both reports to be true. The Times correctly notes that demand slowed in January and this then depressed used car prices. These lower prices created new demand for used vehicles that “led to the largest increase in wholesale values since late 2021,” writes CNBC. And that opens up interesting questions about where things go next.