With the spring car buying season in full swing, those looking for a deal in the used car market are unlikely to find one.
According to a new report, “Used Market Enters Uncharted Territory Post-Pandemic,” released from auto shopping site Edmunds.com, while used car prices have softened somewhat recently, they still remain historically high. Edmunds data compiled from dealer retail prices finds that the average used vehicle transaction price in the first quarter was down 6.4% year-on-year, but is still up 44% from five years ago.
“After experiencing a meteoric rise in value, used vehicle prices have come back down to Earth slightly with the return of price falls and seasonal depreciation, but remain significantly higher than they were before the pandemic ,” Edmunds analyst Ivan Drury wrote in a research report.
At $28,381, the average transaction price in the first quarter is considerably higher than the level of $19,657 five years ago. Even more concerning for buyers looking for used cars is that the number of cheap vehicles available is dwindling. Edmunds says the share of used vehicles sold for less than $20,000 was just 30.6 percent in the first quarter, compared with 60.5 percent in the same period five years ago.
Edmunds cites factors such as low lease volume overall, which means fewer off-lease cars hitting the market, low trade-in volume compared to 5 years ago, and fewer off-lease vehicles being returned and sold on the market used as reasons why the set of used vehicles has been decreasing.
Since used cars are the primary way for most buyers to enter the entry-level car market, it seems that most people earning at the lower end of the pay scale will struggle to get a car
“Not long ago, $20,000 was considered an acceptable amount to spend on a used car for an optimal combination of miles and age,” Drury writes. “In today’s market, $20,000 puts consumers into a much older vehicle or an inventory piece approaching the 100,000 mile mark.”
The one bright spot in the report for consumers is that buyers who currently own a used car, even those that have gotten older and put on more miles, haven’t lost as much value compared to the pandemic previous For example, Edmunds finds that the average mileage of a 2018 Toyota Camry has increased 130% between the first quarter of 2020 and the first quarter of 2023, but surprisingly, the average transaction price has also increased by 8.0 %.
And for those looking to get into a used car in the not too distant future, there may be some relief through the new car market. Edmunds says that if new car sales stall this year, automakers will have to use incentives to move new cars off dealer lots, which would put pressure on the used market.
But even that may be unlikely, as automakers have learned a lesson from the pre-pandemic era and are no longer flooding dealer lots with inventory. Instead, they’ve tried to “align supply and demand,” meaning they’re making fewer vehicles, building more vehicles to order, meaning heavy incentives may become a thing of the past.
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Pras Subramanian is a reporter for Yahoo Finance. You can follow it Twitter yen Instagram.
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