Used Car Prices Remain Stubbornly High

• We’re still feeling the lingering effects of pandemic-era supply chain challenges.
• Low lease, trade-in and off-rental volumes are drying up supply and keeping prices elevated.
• One upside for vehicle owners who’ve held onto their car the past few years: They’ve virtually been driving for "free."

Anyone hoping that the used vehicle market will become more predictable or even right-size itself in 2023 will likely be disappointed. Unique market conditions and a slew of new challenges are reshaping the used market in unexpected ways.

After experiencing a meteoric rise in value, used vehicle prices have slightly inched back toward Earth with the return of price drops and seasonal depreciation but remain significantly higher than they were pre-pandemic.

Given the price ascension of new vehicles, used ones still provide value to consumers seeking an affordable mode of transportation. That said, the main sources of used vehicle inventory (lease returns, trade-ins and daily rentals) are still constrained, meaning the used vehicle market is expected to remain competitive with the tandem of reduced volume and high demand keeping prices elevated.

Price relief for shoppers could arrive if and when automakers reignite incentives on new vehicles, but for now, discounting remains limited. And with the fragility of today’s pesky supply chains, any discounting out there may not make a significant impact in the near term.

Edmunds analysts crunched the numbers and unearthed four major trends in a new Q1 2023 Used Vehicle Report published today. Here are the major takeaways:

Trend 1: Used car prices are softening but remain historically high. The average used vehicle transaction price in Q1 2023 dipped 6.4% year-over-year but is up 44% from five years ago.

Trend 2: The pool of affordable used vehicles is shrinking, but the used market continues to offer value compared to new. The share of used vehicles sold for under $20,000 was 30.6% in Q1 2023 compared to 60.5% five years prior. In the new car market, less than 1% of vehicles sold in Q1 were under $20,000, which showcases how the used market offers compelling value to consumers requiring a less expensive option.

Trend 3: Many vehicle owners have virtually driven for free over the last three years thanks to elevated used car values. Although used vehicles are beginning to depreciate again, values of older used vehicles are near where they were three years ago.

Trend 4: The supply of used vehicles is being squeezed across the board. 

• Lease volume dropped significantly to 559,000 vehicles in Q1 2023 from 1 million vehicles in Q1 2018. 
• Trade-in volume declined to 5.5 million vehicles in 2022 from 6.2 million vehicles in 2018. 
• Off-rental vehicles, which have historically been a steady source for near-new used vehicles, are now much older, with the average vehicle age climbing to 3 years in March 2023 from 1.9 years in March 2019. 

Key takeaways for used-car shoppers

Any relief for consumers in the used market would likely arise from changes on the new vehicle side. If you’re in the market for a used car in the meantime, keep these tips in mind:

• Know the value of your trade-in: Getting top-dollar for your current vehicle is your best defense against these unrelenting price tags.

• Shop around for preapproved financing as diligently as you’re shopping for an actual vehicle.

• Remain flexible and thorough: Consider older used vehicles if you’re looking for a better bargain, and make sure to buy from a reputable dealer that offers a detailed vehicle history report so you have peace of mind.

Check out the Edmunds Q1 2023 Used Vehicle Report for even more in-depth analysis on what lies ahead.

Edmunds says

Options are limited for shoppers searching for a reasonably priced used car, but there are a few tips to keeping the damage to a minimum.