The used car market has been in flux over the past few years, and as 2025 unfolds, dealers and consumers alike are navigating a challenging landscape. Jonathan Banks, Vice President of Product Development and Valuation Services at J.D. Power, joins us on today’s episode of Inside Automotive to discuss the ongoing effects of supply shortages, affordability concerns, and strategic opportunities for dealers looking to stay competitive.
Banks says the used car market will reach a critical point in 2025. He explains that the industry is experiencing a low supply of used cars due to the significant drop in new vehicle sales during the pandemic years. From 2016 to 2019, annual new vehicle sales averaged between 17 and 17.5 million units. However, in 2020 and 2021, sales plummeted to approximately 13.7 million, creating a long-term impact on used vehicle availability.
At the same time, new vehicle sales have rebounded, reaching 15.5 million in 2023 and 16 million in 2024, with manufacturers offering incentives and discounts. This dynamic puts downward pressure on used vehicle pricing, but affordability remains a major concern. While only one in four consumers trading in a used vehicle at franchised dealerships has negative equity, those with trade-ins hold an average of $4,800 in equity—double the pre-pandemic amount. However, sticker shock persists, as vehicle prices have surged beyond wage growth, leading to a decline in real purchasing power.
Banks stressed that younger buyers, particularly those under 35, delay vehicle purchases due to affordability concerns, lifestyle changes, and alternative transportation options. He suggested that dealers should focus on offering more affordable, older-model vehicles, including previously overlooked compact cars such as the Ford Focus and Chevrolet Sonic.
Competition for used inventory remains fierce, with franchise dealers competing against independents and major retailers like CarMax and Carvana. Banks emphasized that sourcing and pricing strategies must be more precise than ever. Dealers should analyze specific vehicle trims and features to optimize profitability rather than rely on broad inventory acquisitions. With lease maturities at their lowest levels in over a decade—down to about 2 million units—securing quality used inventory will be increasingly difficult.
Despite these challenges, Banks noted that profitability remains a top priority for dealers who adapt their strategies to the evolving market.
"A used payment on average through franchise dealers is what a new payment used to be in 2019. Right. Kind of, wow, mind blowing. That is crazy." – Jonathan Banks
