Used cars are higher than ever…and the market is still broken

Used car prices have continued to rise, leaving consumers crunched to find budget-friendly
alternatives to the skyrocketing new car market, and further straining individuals looking for
affordability amidst the swirl of consumer price increases around them.
According to Cox Automotive’s Manheim Used Vehicle Value Index—which tracks cost of
used vehicles sold at its U.S. auctions—prices increased 6.2% last month compared with a
year earlier. The index also hit its highest level since the summer of 2023.

With many consumers experiencing sticker shock in new car showrooms, shoppers are
heading to the used car lots since mid-sized, budget friendly SUVs and sedans have
become non-existent in new model showrooms. But with inventory tight on the used side,
consumers aren’t getting much relief.

Though the Mid East conflict lingers on, as oil and gas prices continue to rise, and various
geopolitical tensions unfold–demand for used vehicles remains strong.
“We thought we’d see some impact from the Middle East conflict, and that may still
happen. But right now, the data is clear: used-vehicle demand is healthy, and inventory
levels are relatively tight,” Cox Automotive’s chief economist, Jeremy Robb, said in a press
release.
Cox forecasts wholesale prices to rise 2% this year. As of February, the average listed price
for a used vehicle was $25,287. Compared to pre-pandemic values, that’s a 30%-40%
increase. The average price for a new vehicle was $49,100.

Used car prices were relatively flat for the last two decades, but the pandemic changed
everything. Factory shutdowns and surging demand sent the used car Consumer Price
Index from 130 in January 2020 to 209 by June 2022. When supply is literally cut in half and
demand doubles, bargain hunting disappears. What consumers knew as “normal
depreciation” is gone.
The pandemic erased normal depreciation, pushing used car values to a new, higher
baseline, a shift that still defines today’s market.

Another wildcard is the volatility of the recent market. Wholesale indexes like Manheim’s
surged 30% year-over-year in early 2022, then gradually receded. However, dips in
wholesale auction prices don’t always translate to cuts on lot sticker prices: carrying costs
and finance rates keep margins tight. Buyer anxiety increases in that ‘is a $400 per month
payment on a seven-year-old SUV a bargain, or crazy’? And some consumers find
themselves padding out financing on used vehicles to as much as 60 months, with some
going as far as 72 months, or beyond, a practice most consumer experts would have called
insane a decade ago.

In addition to the price increase, current maintenance cost is an estimated $10.13 cents
per mile, according to AAA, roughly $1,500 per year for a vehicle with 15,000 miles.
Insurance rates have trickled up 10%-15% as well, leaving some consumers paying more
today for a decade-old sedan than they would have paid for a new car six years ago.

“Stronger retail demand continues to be supported by new vehicle affordability pressures
that are pushing consumers toward used vehicles, while lower new-vehicle sales are
constraining trade-in volumes and limiting supply into the used market,” said Cox.
Most U.S. consumers are purchasing used vehicles though, since they are still more
affordable than newer models. The new U.S. vehicle market is expected to hit 15.8 million
vehicles this year, again, according to Cox Automotive.
The higher prices, fewer bargains and market volatility may be the new normal for the used
car business, and consumers may have to look harder and act quicker when values do
appear.