The used vehicle market remained strained by pent-up demand and supply shortages throughout the second quarter, according to research by Edmunds.
Since the onset of the COVID pandemic, the preowned segment has seen values fluctuate rapidly. In Q2, used vehicle transaction prices averaged $29,472, a decline of 4.6% from the prior-year period. The drop is largely due to the influx of new cars seen after OEMs resumed production in mid-2022, which drove demand down for the used market. However, vehicles in the segment remain 46% more expensive than they were before the pandemic.
While factory closures boosted prices throughout the pandemic, the disruption of OEM production nevertheless had some adverse effects on the used vehicle market. With roughly two and a half years of supply shortages, trade-ins of newer cars dropped as price-conscious drivers decided to wait on a purchase. As a result, the number of pre-owned vehicles older than three years carried by dealers increased 9% between Q2 2019 and Q2 2023 to an average of 51%.
In Q2, the number of customers who opted for a used vehicle lease increased from the previous quarter to account for roughly 20% of the market. However, Edmunds notes that leasing has seen decreased usage since the COVID pandemic began. Used car dealers have also been forced to stock fewer previously leased vehicles as automakers have implemented rules against third-party buyouts and early lease terminations.
While used vehicle retailers continued to be challenged by inventory conditions throughout the second quarter, the segment remains profitable for dealers as shortages continue to inflate prices. Demand is also rising as consumers who put off their purchases during the pandemic return to the market in greater numbers. Nevertheless, dealerships should prepare for a cooldown in the coming months, as the automotive industry is returning faster than ever toward pre-pandemic norms.