Is The Used Car Market Going Down? [2022]

Is The Used Car Market Going Down? [2022]

As of today, average used car prices have risen by 48% from where they were two years ago. Given the large increase, I think it’s fair to ask ourselves, when will this stop? Or better yet, is the used car market going down now?

Having been in the market for a used car over the last few months, I have been keeping a close eye on the month-over-month trends since the prices started rising.

All I can say is, it either looks good or bad depending on which type of car you’re after.

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How We Got High Used Car Prices

The pandemic affected many industries, and the automotive industry was no stranger to effects.

Many cars today contain multiple microchips to power things like the infotainment or more critical functions like the powertrain. Unfortunately, due to the shutdowns, microchips were left in short supply.

Factories had to slow down production or shut down completely. As they reopened, they have been unable to fulfill the demand. After all, these microchips are not only needed for new cars, but for other electronics like laptops and phones. All of which did not see a slow down in demand over the last few years.

With the shortage of microchips, car manufacturers had to balance two things – keep producing cars with less features or build less cars based on their current microchip supply.

In the end, car manufacturers were not able to build new cars fast enough, letting demand increase and new car prices to rise. So, where did all those people looking for new cars go when they saw these higher markups? They flooded the used car market.

Chart from CarGurus

Other Factors

The microchip shortage is just one of the many factors that affected used car pricing. After all, we’ve had some recent geopolitical developments that have added fuel to the fire.

Russia and Ukraine’s conflict have left certain automakers short of other crucial parts. BMW was forced to stop production of BMW and MINI in Europe, while Volkswagen was also faced with a similar issue.

Constant disruptions and bottlenecks to these automakers’ supply chains have only left us with less supply.

These geopolitical events have also left us with some of the highest gas prices we’ve seen. According to the Energy Information Administration in the US, gas prices have increased by 53% year-over-year and are sitting near all time highs.

Chart from YCharts

As gas prices increase, certain class of vehicles will also increase in price—new and used. And in the case of those big gas guzzlers, we’ll likely start seeing less demand for those. Eight miles per gallon will probably not cut it for us commuters anymore.

Where Current Used Car Prices Stand

We’re now a few years removed from the start of the global shutdowns, so where does that leave used car prices? Does is look like used car prices have started to drop?

The answer to that question is not so simple.

According to the used car pricing trends from CarGurus, the used car price index has only increased by a few percentage points since early January 2022 up to now. In comparison to last year during the same time frame, that index saw a 22% increase.

Chart from CarGurus

So, what does this mean?

For the average car buyer, it looks like used car prices are still rising—but only ever so slightly. If you’re purchasing now, you’re still going to be paying near top dollar.

Although the trends still show high prices, they also paint a picture that things are beginning to stabilize, and they may be on the downturn soon.

To verify my suspicion of a potential downturn in prices, I turned to Cars & Bids. Cars & Bids hosts auctions for modern enthusiast cars and it’s where I go to satisfy my car hunting itch. You can see past auction results for various vehicles and it’s where I first noticed that there may be a soon-to-be downtrend in the used car market.

And if you don’t believe my suspicion, then maybe a tweet from the creator himself will support me:

Example From The Market

Let’s take the Ferrari California as an example. There’s been two recent listings on Cars and Bids that help illustrate my point.

Notice how these two examples of the Ferrari California were bid to $80k and did not meet reserve? This indicates that the seller expected the price of the auction to end higher, however, the bidders ‘spoke’ and determined that $80k is the price they’re willing to bid up to.

Although it’s only two examples, this could be the beginning of a new price ‘floor’ for the Ferrari California.

If we go back a few years, you can see in the image above the astronomical price that these were going for in 2011, and it seems the prices have crashed back down now to where they were before the pandemic shutdowns in 2020.

Obviously, the Ferrari California is not what your average car buyer is getting nowadays, but as you scroll through many sites, you’ll be able to see a similar trend.

So, what do you think? Are we close to prices dropping for all cars? Let’s just wait and see.

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