Consumers are intentionally purchasing older used vehicles as inventory challenges and economic pressures force a change in spending habits.
Automotive research platform iSeeCars.com reports that car prices have risen so fast that the current average price of a six-year-old vehicle outweighs that of a three-year-old vehicle in 2019. At the root of this rampant inflation is the COVID pandemic. Manufacturing disruptions had lasting effects on both new and used vehicles, creating shortages in both segments that drove price tags to record highs.
Car buyers are facing another issue; their money is losing its value. While inflation is the chief culprit of this trend, rising interest rates are also straining employers, leading to slow job and wage growth. Credit availability is facing pressure as well, preventing many would-be buyers from qualifying for affordable loans. Although banks have started to ease restrictive lending practices, many remain on high alert after the collapse of several financial institutions in the first quarter of 2023. All of these headwinds are leading drivers to adjust their buying habits and opt for older, and hopefully cheaper, used vehicles.
This shift can be seen in the rising age of recently purchased used vehicles. According to iSeeCars.com, the share of vehicles aged one to four years declined between 2019 and 2023, with one-year-old models seeing the steepest drop. Meanwhile, the percentage of vehicles aged five to 11+ years increased dramatically, with 10-year-old models seeing the most growth. During the same period, prices across all age groups rose significantly but slowed as the age of the vehicle increased.
For customers, used vehicles are supposed to be a reliable alternative when the new car market becomes too expensive. However, the data indicates that this is no longer the case. Although the effects of pent-up demand have allowed the retail automotive sector to drive profits in the years following the pandemic, it is unclear how long these advantages will last. Dealers may soon need to attract jaded, sticker-shocked customers should the industry normalize from the effects of COVID at a faster pace.