As used car prices remain well above industry norms, more and more dealers are asking how long the trend will last. On this episode of Inside Automotive, CBT News anchor Jim Fitzpatrick is joined by Jonathan Banks, the vice president and general manager for vehicle valuations at J.D. Power, to answer this question and shed more light on the factors currently influencing the preowned market.
Although analysts had expected used car prices to continue a decline first seen in early 2022, monthly listing reports from both February and March showed the exact opposite had happened. While some gains were to be expected during tax season, the quarterly increase was much greater than industry forecasts.
Banks explains that consumers and manufacturers have been the primary drivers of this growth. Buyers have been putting off their vehicle purchases for several years due to COVID, creating an excess of pent-up demand in the post-pandemic marketplace. When new vehicle inventory recovered, customers rushed back into the market only to find that OEMs were focusing on high-income customers, producing more expensive models as a result. Only a handful of brands continue to carry budget-friendly cars, leaving shoppers with few decent, affordable options. Consequently, these buyers have returned to the preowned market, hoping to find a better deal. This resurgence of demand has caused used car prices to regain some of the ground they lost in 2022.
However, even though sales and prices are both currently inflated, Banks warns dealers that a lack of caution could lead to an event similar to last year’s preowned market crash. Seeing buyers line up, retailers may be tempted to take on more stock in preparation for spring, but if automaker prices normalize or demand weakens then stores will be left with depreciating vehicles and no customers.
In the near future, Banks also predicts that used car prices will see a moderate decrease. Automakers are pushing out more incentives while competitive discounts between dealers are making a reappearance. However, while the news may disappoint some dealers, he notes that even with the decline, values will still be considerably inflated.
