Used Car Prices Pop Back Up Due To Inflation Rising

Is now a good time to buy a car?

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Used Car Prices Pop Back Up Due To Inflation Rising

By Lauren Fix

Used car prices have jumped again unexpectedly, which suggests that inflation is increasing and impacting car buyers. This news squashes the optimistic predictions that inflation is heading downward, as the Federal Reserve continues to hike interest rates.

Used car prices have increasingly become a point of interest for investors as a barometer for measuring and easing inflation. The White House is blaming much of the rising inflation rates starting in the first half of 2022 on the used vehicle market and not other economic factors.

Used car prices are a leading indicators in the Consumer Price Index (CPI), making up 4.5 percent of the survey. Over the last six months, used car prices fell as demand fell, with interest rates starting to rise again, buyers are paying cash and demand has returned.

The car market remains volatile, shopping for a new or used car over the last few years has become a frustrating and expensive undertaking. Car shoppers have had to deal with vehicle shortages, high prices, dwindling incentives, and rising interest rates. 

So is now the best time to buy a vehicle?

Used vehicle prices have risen since the start of the pandemic, as a combination of lockdowns, and supply chain issues caused the production of new vehicles to drop. The low supply of new vehicles and record-high purchasing costs, along with strong demand, pushed consumers into the used vehicle market, leading to price increases.

According to Cox Automotive, an unexpected spike in demand for used vehicles in January of 2023 was a major factor as inventories of used cars started to recover. 

The Mannheim index tracks the price of used vehicles sold at its U.S. wholesale auctions, which are often a bellwether for the new-car market. They found that in 2022, buyers held off from purchasing used vehicles due to record-high prices and rising borrowing rates. Consumers are using credit unions and cash to get the best deal possible.

Wholesale car prices are expected to fall by end of the year. Incentives for new cars will be limited as supply chain issues still remain tight and manufacturers find new suppliers.

For your reference, Cox reported that the average listed price for a used vehicle is $27,143 in December 2022, down nearly 4 percent from a year earlier. The used vehicle market has stabilized in January 2023, with inventories remaining stable and prices dipping from their record highs.

New vehicle prices in the U.S. hit a record high in December 2022 at $49,507, thats up almost 5% from 2021. High car prices and unforgiving interest rates are why many American drivers said in a recent survey, that they don't plan to shop for cars this year. Supply-chain problems that have hit vehicle production are not fully resolved, and the supply of newer used vehicles likely won't return to normal until at least 2025. Consumers are buying out their leases and keeping the vehicles they have, which is reducing the used car inventory and increasing the price as demand remain high.

If you can wait till later this year, manufacturers should start discounting vehicles, while dealers need to stop with ADM (Additional Dealer Markup) and Market Adjustment Prices and be ready to negotiate prices again. I’m not against dealers making money, but over charging is bad for the customers. 

Given the volatility of pricing, it is critical to know the market value of the vehicle you’re looking at to avoid overpaying. Get multiple price quotes for the vehicle you want and check what others are paying on sites such as Edmunds. Shopping for a car in 2023 may seem daunting. But you can make it easier by getting pre-approved on your loan and researching a fair price for the vehicle you’re buying and the value of your trade-in.

There is so much more to discuss on this, put your comments below and let’s start the conversation.

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