Why Used Car Prices Are Rising After Months of Declines

Car buyers got a rude surprise on used car prices yesterday. April’s Consumer Price Index report(opens in new tab) revealed that used vehicles are getting more expensive again after an uninterrupted decline since July 2022. Here’s what happened, and what buyers can expect next.

The used car price rollercoaster
In June 2021, used cars had risen so far that they accounted for a full third of the year-on-year inflation rate, according to Quartz(opens in new tab). At that point, pandemic-related supply disruptions and a misreading of customer demand meant manufacturers struggled to procure parts and chips for new cars. This trickled down into a lack of supply and soaring prices in the used car market.

As the pandemic eased and supply chains unkinked, the used car market started to cool off. Before this latest CPI report, Kelley Blue Book(opens in new tab) reported that used cars had dropped for months thanks to new cars steadily entering the market and feeding the supply of used cars, as well as consumers who refused to stop spending in the face of continued inflation.

CNN(opens in new tab) reported in February that auto wholesaler Mannheim registered a 4% jump in its average wholesale used car price in the middle of February, which was likely to trickle down to individual car buyers. CPI data usually takes some time to register these shifts, which eventually showed up in the April data.

Experts had also predicted that dealers would hoard used cars for the start of April, when millions of Americans were receiving their tax refunds. They also predicted prices would start to fall again shortly thereafter as refunds dried up in the weeks following Tax Day.

Sure enough, Kelly Blue Book reported in late April on a real-time drop in wholesale used car prices(opens in new tab), predicting that “retail prices are likely to fall once the pricier cars have all sold. That could take a month or more.”

This downshift in prices should show which means used car inflation will retreat again later in future CPI reports. Buyers in the market now should monitor prices to see this wholesale price cuts trickle into the consumer market as we inch toward summer.

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