Here’s Why We’ll Now See Prices Drop on the Used Car Market

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Used car prices have hit astronomical levels in recent years. This was largely due to a shortage of newly available vehicles and increased car demand.

Additionally, automakers have struggled to produce more vehicles due to a shortage of semiconductors, making it challenging for them to keep their lots stocked. In April 2021, used car prices were up 10%, and sales were up 58% from the previous year.

Luckily, we should start to see used car prices drop shortly. Read this guide from Universal Toyota to find out why.

The Market Reached Its Peak

According to Copilot’s monthly Return to Normal Index, the used car market has finally peaked. In August 2022, used car prices fell to $33,414, with dealers forced to drop their prices across the board to maintain sales momentum.

Car prices dropped across all age brackets beginning in August, most prominently across vehicles 1 to 3 years old.

Repossessions and Auto Loan Defaults Are Increasing

Another thing we’re seeing is an increase in repossessions and auto loan defaults. Across the board, Americans are struggling due to inflation and surging prices. In fact, according to a recent Gallup poll, 45% of American families stated they’ve experienced either moderate or severe hardship due to inflation.

And it’s not just families in lower income brackets suffering from inflation. According to the same report, one-third of families with a household income of $100,000 or more stated that they’ve also experienced hardship.

With these circumstances in mind, it is no surprise that car repossessions and auto loan defaults are rising. Car repossessions reached their lowest levels in 2020 compared to the previous five years. However, repossessions began to rise in 2021 and 2022. In particular, subprime repossessions are up 11% compared to 2020.

Additionally, auto loan debt grew to $1.47 trillion in 2022. However, the news isn’t all bad, as default rates in 2022 are well below what they were in 2019.

To put it simply, rising interest rates translate to more expensive auto loans when consumers want to buy. As used car loans become more expensive, many consumers will abandon their plans to buy used cars, resulting in larger inventories that force dealerships to slash their prices. With interest rates continuing to climb across the board, we should see the price of used cars finally level off.

Certain Cars Lose Value Faster

Another thing to keep in mind is that certain vehicles lose value faster. While prices should decrease overall, you should still expect significant differences among models, car brands, and states.

For example, you can expect high demand for certified pre-owned vehicles and only a small price drop. Additionally, automakers that excel in consumer satisfaction and brand recognition will continue to command higher prices.

On the other hand, pickup trucks and pre-owned SUVs will likely experience record price drops, as these aren’t in as high of demand as other vehicles.

Used Car Prices: Deciding to Buy

While used car prices should continue to drop across the board, it’s still essential to have your finances in order before you purchase a vehicle. This way, you don’t have to worry about defaulting on your auto loan or your car going into repossession.

If you’re looking for a great deal on a used car, check out our specials.