Why Used Car Prices Are On The Rise

It’s not secret that used car prices have been on the rise recently, just as everything else has seen rising costs due to inflation, but it’s important to ask why. Rising used car prices are something that everyone has to deal with, but understanding the forces behind them can be helpful in navigating the used car world when you’re looking for a good deal, as well as forecasting when prices may drop back down again.

Fluctuations In Car Prices

Used car prices actually went down slightly in 2022, the early part of 2023 has seen them rise back up to the tune of over 4% in January and February—one of the largest two-month price increases in nearly a decade. There are, of course, some simple explanations for these fluctuations, mainly the COVID-19 pandemic and the ensuing market corrections that saw prices decrease with consumer demand and tighter budgets, followed by an increase as our lives returned to some form of normalcy.

Retail Follows Wholesale

As inflation has reached new heights in the aftermath of the pandemic, interest rates have been increased in an attempt to offset runaway prices and help ease the burden on consumers. Higher interest rates, of course, mean that cars have become less affordable for consumers, particularly new cars as prices have continued to climb even after a slight leveling off in 2022. As is generally the case in the auto industry, market trends tend to start at the wholesale level and then get reflected on the retail level. Since increased interest rates have bumped up the wholesale cost of cars, consumers are left holding the bag to absorb the increased costs at the retail end of things so that dealers and manufacturers can maintain their profit margins.

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Supply Chain Issues

One of the biggest drivers of recent inflation has been the Coronavirus, largely because it disrupted supply chain efficiency and made it harder for goods to find their way from manufacturers to the retail level. This is true of most everyday goods and it also applied to new cars and, as a result, used cars. With less available inventory, there was more demand than usual for vehicles, which in turn leads to higher prices through the basic mechanism of supply and demand.

Market Changes & Delayed Effects

While used car prices were slightly down at the beginning of 2023, that isn’t necessarily reflective of what was happening on the wholesale market at the time. As we mentioned above, retail price fluctuations follow wholesale fluctuations, but there is typically a delay between the two of four to eight weeks. What this effectively means is that the effects of inflation haven’t yet truly been felt by consumers as much as they have by wholesalers and manufacturers to this point, but it also points to the fact the upcoming months will likely reflect those prices increases. As a result, consumers can expect new and used car prices to climb higher in the near future before they decline again.