Rising Used Car Prices Are Nice for Sellers, But Not Here to Stay

The Manheim Used Car Index has increased for two consecutive months for the first time since Winter 2021. 

It’s a Christmas Miracle if you’re trying to sell a car. 

Used car price drops have been hard on sellers this year, Partially because the drops have been so steep and partially because the human brain assigns more emotional weight to losses than to gains. It’s literally the reason money doesn’t make people happy. 

While the two months of stability have been a welcome change, we don’t expect used car prices to continue rising. We do, however, expect the rate of decrease to slow down in 2023. 

Total used car sales are also down — 13% compared with this time last year. But we’ve also seen used car list prices coming down some, too, finally dropping below this time last year. This could signal buyers adjusting their expectations to the market conditions, which could ultimately lead to more sales going into the new year. 

New Car Prices Helping Used Car Prices

One reason we’re seeing used car prices level out is the fact that new car prices haven’t as much. Sure, buyers were paying well over list-price for new cars during last year’s supply-chain disruptions, but even as the market has normalized, we’re seeing fewer and fewer manufacturer discounts and promotions. 

So as shoppers see the holiday season pass them by without a discount opportunity on the new car they want, they are turning to the used car market. Even with new car inventory on its way back up, the lack of purchasing incentives will likely drive some buyers to used vehicles. 

Used Car Prices are Still Unprecedented 

In a December report on auto loans, Cox Automotive Chief Economist Jonathan Smoke reminded readers, “And yes, despite a period in 2020 and 2021 when used vehicles were INCREASING in value, automobiles are depreciated assets. Over time, they always have been and always will be depreciating assets. Negative equity in an auto loan is not some exotic thing – it is a very normal and planned-for occurrence.”

This is still unprecedented territory for the used car industry. Never before has the average seller expected to be able to resell a used car at a profit. But after a few months of an outrageous market, many current sellers are feeling left out.

And it’s perfectly understandable to be sad about less money. Less money is almost always worse than more money. 

You Probably Won’t Make More Money Later

The truth is, used car prices are still way higher than they’ve historically been. That means we can expect the current prices to keep dropping back to normal sooner or later. So if you’re thinking about selling, don’t wait too long. 

Since the market is still much higher than its historic trajectory, we can expect it to continue to drop well into 2023. 

So unless you’re not planning on selling until the back half of 2023, you may want to sell in January or February.

A small increase in used car prices may indicate coming stability.

For the first time this summer, the Manheim Used Vehicle Index saw a slight uptick. We also saw the number of used vehicles sold go up since October. 

That doesn’t mean used car prices are about to go back up. But hopefully, we’ll see prices stabilize here through the holiday season. Heck, they might even go up a bit as holiday purchasing reduces overall availability. 

Used car prices have been on the fall in recent months, but the Manheim Used Car Index shows prices are still much higher compared with previous years’ trends.

Used Car Prices Stabilize as Activity Increases

At Carmigo, we haven’t seen much of an increase in the number of cars selling, but we have seen a marked increase in the number of offers being made to sellers. 

We think this trend is due to increased demand from buyers, even if the sales haven’t gone up yet. This is because the prices sellers are expecting and the prices buyers are willing to pay haven’t quite evened out. Now that the prices have leveled out for a little while, buyers and sellers have time to adjust their expectations. 

New Vehicle Inventory Reduces Used Car Demand

Part of the reason prices were so high leading up to this summer was the relatively low availability of new cars. Now that new car inventory has reached 2021 levels (according to ZeroSum Market), buyers are no longer turning to used cars out of necessity.

The silver lining in this ZeroSum report is a slight decrease in used car inventory, meaning prices shouldn’t continue to drop in the interim. 

Fewer used cars available means higher prices for sellers, keeping used car prices stable in spite of increased new car inventory.  

Used Car Prices are Still at Record Levels

Because we’ve seen such steady declines in used car prices over the past few months, many sellers have lost sight of the fact that prices are still much higher than at any point in the past decade.

Year on year, the Manheim Used Car Index (and used car prices/demand overall) has gone up or down a few points each year with the overall trend being incremental growth. Up five points one year, down two points the next, and so on. 

But in 2021, the index shot up from about 130 to 240.

So even though we’ve seen a 40-point decline in the last few months, the current index is still astronomically higher than it was this time two years ago.  

What Do Used Car Prices Mean for You?

So what can you expect if you sell your car this winter? You can expect to make less than you would have this summer, but still much more than at any time in the history of used car sales. 

Because the demand for used cars has gone down, dealerships only want to stock their lots with used cars that will sell quickly. That means cars like Accords, Camrys, F150s, and small crossovers like the Hyundai Santa Fe will attract more offers. 

That doesn’t mean you can’t sell a larger SUV or luxury car this winter, you just may not see as much interest in more expensive models.