After a spike in new and used vehicle prices during the pandemic, the used car market is gradually back on its feet, with an average price decline of 5% in 2023.
The IseeCarss study reports many popular used models are more affordable today than they were at the end of 2022.
Improved stability in supply chains and increased new car production, coupled with many buyers delaying buying a used car because of high interest rates, continue to push used car prices down. Used vehicles will likely become even more affordable in 2024 and beyond; excellent news for consumers.
A Price Dip Follows a Price Boom
In 2020, prices on used cars climbed as vehicle inventory dwindled. Supply chain disruptions hampered production, making both new and used vehicles more expensive.
Used vehicle prices soared in March 2021. By the close of that year, the average used car cost approximately 36% more than at the start. If you bought a car for $22,000 in the first quarter of 2021, you’d have paid about $30,000 for the same vehicle in December of that year.
The price index remained stable the following year, but a slight decline started in the last quarter of 2022, and this trend continued throughout 2023. “We are seeing a drop of about 3.6% to 4.5% for Lexus IS 300 / 350 from October 2023 compared to the same term last year,” says Patrick Oziegbe, an automotive writer at Auto Renting Tutors.
According to Black Book data, the wholesale prices of used vehicles have been declining for the past several months, which also impacts retail prices. Although used car prices haven’t returned to pre-pandemic levels, buyers can hope that used vehicles will become more affordable in 2024.
Used Car Prices at the Start and Close of 2023
At the beginning of 2023, automotive industry authorities estimated that used car prices would drop. The Black Book review of 2022 shows that, by the end of that year, the average used vehicle cost was approximately 60% higher compared to the pre-pandemic era.
This used car price bubble, which peaked in 2021 and 2022, was unsustainable, and a burst was inevitable. Overall, 2023 confirmed these predictions. Today, used vehicle prices are becoming more reasonable and will likely continue to decline.
Why Used Cars Are Getting Cheaper
Two main factors are pushing used car prices down: a growth in supply and a decrease in demand.
First, the new car supply is improving. As vehicle production grows in China, Japan, and other countries, more new cars are entering the market. Supply chains have stabilized since China eased its zero-COVID goals. More new cars mean generally less demand for used ones.
Second, high interest rates may delay car buying decisions. When inflation pressures households, many car owners hold off on a vehicle upgrade for another year or two. Although used car affordability is improving, car loans are still out of many people’s reach.
Retail Prices Follow Wholesale Prices
When discussing car prices, it’s essential to understand the difference between wholesale and retail costs. Car dealers purchase vehicles in bulk, while consumers buy vehicles from dealers at a higher markup price. There’s a direct link between wholesale and retail prices. When wholesale prices drop, a decline in retail prices follows.
Some Vehicle Types Showing a Steeper Price Drop
Looking deeper into this downward trend of used car prices, it’s apparent the price drops differ according to vehicle type and brand. According to iSeeCars, many popular vehicle brands, including Chevrolet, Volvo, and Buick, fetch lower prices on the used car market. For instance, the price of a three-year-old Chevrolet Blazer declined by 16.6% on average from October 2022 to September 2023.
BMW is another brand that has shown price drops in recent weeks. Oziegbe says, “Some small-sized BMW sedans like BMW 3 Series are cheaper with average drops of 14.5%, though this positive trend may not last long.”
Remember that, for pricier car models, a drop of even a few percentage points could save buyers thousands of dollars.
Vehicle Prices May Continue Falling in 2024
Only time will tell if there’s a dramatic drop in used car prices, but it’s reasonable to assume car manufacturers will try to avoid a market surplus. As long as new vehicles aren’t too plentiful or cheap, used car prices will likely remain stable with a moderate decrease. Although used cars are now more affordable than last year, the prices are still higher than before the pandemic.
If affordable new cars swamp the market, interest rates keep rising, and people buy fewer cars, used vehicle prices may fall more than we have seen until now.
The supply vs. demand play could add more value to older vehicles. Buyers looking to purchase a car at a low price point may have to choose from older cars since newer vehicles would outstrip their budget.
Is Now a Good Time to Buy a Used Car?
What does the downward shift in used car prices mean for consumers? Should drivers buy a used vehicle now or wait for prices to drop further? The answer depends on your needs, budget, and the type of car you’re looking for. Suffice it to say that if you’re in the market for a used vehicle, the prices are in your favor.
While used cars are now cheaper than last year, price shifts aren’t always predictable. If you need a car and find an attractive deal on a model you like and can afford, it might be a good idea to buy it while it’s on the market. Follow smart buyer practices to choose the right car. Consider a financing option with an attractive price and the most convenient payment terms. If you’re looking for a specific model, like the BMW 3 Series, research the best and most reliable make years.
