Over the past two years, used car inflation trends have been on an upward trajectory. However, the sales boom is beginning to experience slight declines and is projected to level out. Despite this, used car values are projected to remain strong throughout the rest of the year. 

Read on to learn more about what’s happening with used car pricing and the implications for your dealership.

Highlights:

• New vehicle production is predicted to be sluggish throughout the rest of 2022 due to the continuous chip shortage. This means that used car buying will likely still have momentum throughout the rest of the year.
• Compared to 2021, there’s been a slight dip in used car pricing, and prices are projected to level out toward the end of the year. Yet, the used car market is still strong compared to previous years.  
• Dealers can be intentional about the inventory they stock to maximize profits.

2021 Used Car Market Recap

2021 was a historic year for the used car wholesale market. Some of the factors that affected the automotive industry over the past year are influencing the trends in 2022.

Chip Shortage and New Vehicle Production Disruptions

Car chips—also known as microchips or semiconductors—are the small processors found in all consumer electronics. Electronic components in vehicles are no exception. From backup cameras to navigation systems to climate controls, they are an essential component of all modern-day vehicles. 

The pandemic exasperated the demand for electronic goods, such as laptops and gaming consoles. This skyrocketing demand coupled with factory shutdowns, employee quarantines, and port lockdowns, caused a car chip shortage in 2020. Subsequently, new vehicle production came to a screeching halt. This resulted in a supply chain disruption that spilled into 2021 and 2022. 

Pent-Up Need for Vehicles and Industry Shortages

By 2021, the pent-up demand for travel and the newly-stimulated economy meant consumers were ready to shop for a car. However, the microchip shortage put limitations on the number of new cars built. Car lots that were once filled with new vehicles were practically empty. New vehicle buyers were faced with a choice—purchase a used vehicle or hold off from buying completely.

Record-Setting Used Car Demand Leads to Record High Pricing

Even though the demand for used cars led to an increase in ticket prices, car-buyers didn’t shy away from purchasing used vehicles.¹¹ In fact, what transpired was a 10 percent increase in used cars sold in 2021 compared to 2020. What’s more, there was a 28 percent used car price increase from the beginning of 2021 to year-end.¹  While vehicles are historically known to be a depreciating purchase, they turned into an appreciating asset during 2021.

‍

2022 Used Car Price Trends

From 2021 to 2022, there was a slight shift in used car market trends, but despite these changes, the demand is still high. Retail used car prices dropped at the beginning of 2022. Yet, the average price of a used vehicle was still at a record high of $28,365—up from $21,572 two years prior.² 

New car inventory was low in early 2022. This shortage is partially attributed to the Russia and Ukraine conflict.

The conflict resulted in new vehicle production disruptions due to airspace restrictions, surging metal prices, and a shortage of palladium and neon (essential components in the various auto manufacturing stages).³

In April, car wholesale values dropped 6.4% from the beginning of the year, but the used car price index is still 14% higher than it was one year ago. There was also a modest decline in retail demand due to a slower-than-normal tax refund season.⁴ 

By May and June of 2022, used car and SUV prices were on the rise again. This is in part due to rental companies buffing up their fleets in anticipation of the summer driving season. 

Sub-compact and compact cars are appreciating week over week as the demand for affordable cars increases. What’s more, full-sized vans have continued to increase since the onset of the pandemic, despite the slight dip in pricing in early 2022. It’s important to note that not all vehicles are seeing price increases. Luxury cars and large SUVs are decreasing in value due to their high-price tags and fuel inefficiency.⁵

2022 Used Car Price Predictions

The second half of 2022 will bring more shifts to used car prices. There will still be lingering influence from 2021. The first half of 2022 indicates a strong used car market through the rest of the year. For example, the production pauses in 2021 led to 1.7 million fewer vehicles built year over year.⁶ Plus, while the chip shortage is easing, new vehicle production will still be affected into late 2022, possibly even into 2023. 

As consumer demand shifts to electronic vehicles, semiconductors will be required, even more, necessitating higher production of microchips. While these factors will continue to influence the market, a gradual decrease in pricing is to be expected later in 2022. 

It’s important to note that a pricing crash is not expected in 2022, however, some level of depreciation is predicted. Keep in mind that compact cars, fuel-efficient vehicles, and full-size vans will likely see slight vehicle value appreciation, or at least hold their value in 2022. Likewise, hydrogen cars are expected to soar in sales in the next five years.

Moreover, auto loan interest rates will continue to rise throughout the year to combat inflation. This may cause the demand for vehicles to decrease.      

2023 and Beyond Used Car Price Predictions

According to an executive at Foxconn, one of the world’s largest electronics manufacturers, the chip shortage is projected to alleviate in the coming years. This is because manufacturing facilities that were once closed are operating at normalcy.⁷

Pre-pandemic supply levels could level out by 2024 or even 2025, causing more of a balance between new car pricing and used car pricing. 

Electric and hybrid vehicles require more semiconductors to operate. As the chip shortage eases, they will likely continue to increase in popularity as they become more accessible.

Action Steps for Your Dealership

So, what does this mean for your business? While the price of vehicles is still high, that doesn’t equate to a lack of demand. This is why it’s important to be intentional when you buy auction cars online, and focus on quality over quantity when choosing your inventory.

Market Beyond Your Usual Radius

The car buying experience is likely to change for the average consumer. Not only are they more budget-conscious, but they have access to more information in this digital age. This means that car shoppers will travel further to dealerships—65 miles up from 45 miles traveled on average—to find the right deal. Consider marketing further outside of your normal radius to attract a wider customer base.⁸ 

Opt for High-Demand Makes and Models

When searching for vehicles to add to your lot, buy cars that are in high demand with guaranteed profit margins as prices begin to wane later in the year. For example, full-sized vans, sedans, compact cars, and EV or hybrid vehicles are likely to have quick turnaround times on the lot.

Also, source less expensive vehicles to attract consumers that are priced out of new models. Keep in mind that the demand for vehicles between the years 2005 to 2014 is at an all-time high.⁹ 

But remember, just as there is competition on the retail side to find these vehicles, sourcing them can be equally difficult. This is why it’s important to look for inventory in the right places. If you’re just starting your car sales business, check out our How to Get Into Dealer Auctions guide, so you can find the widest variety of inventory.

According to CarMax sales data, here are some of the most popular used vehicles based on category:¹⁰ 

• Small Cars: Honda Civic, Toyota Corolla, Nissan Sentra
• Midsize Sedans: Honda Accord, Toyota Camry, Nissan Altima
• Hatchbacks: Honda Civic, Toyota Prius, Ford Focus
• Compact SUVs: Nissan Rogue, Honda CR-V, Toyota RAV4
• Crossover SUVs: Honda CR-V, Nissan Rogue, Toyota RAV4
• Midsize SUVs: Jeep Grand Cherokee, Chevrolet Equinox, Ford Explorer
• Large SUVs: Chevrolet Traverse, Chevrolet Tahoe, Lexus GX 460
• Three Row SUVs: Ford Explorer, Nissan Pathfinder, Kia Sorento
• Minivans: Honda Odyssey, Chrysler Pacifica, Toyota Sienna
• Luxury Cars: Tesla Model 3, BMW 540i, Mercedes-Benz E400
• Luxury SUVs: Jeep Wrangler, Toyota 4Runner, Chevrolet Tahoe
• Sports Cars: Ford Mustang, Chevrolet Camaro, Subaru WRX
• Pickup Trucks: Ford F-150, Ram 1500, Toyota Tacoma
• Small Trucks: Toyota Tacoma, Chevrolet Colorado, Nissan Frontier

Consider Trade-In Values

Lean on equity consumers may have in their trade-in when objection handling. The average car shopper can experience sticker shock when browsing. However, they may also have more equity in their vehicle than they realize. This trade-in value can offset rising interest rates and the higher price tag of a car they have their eyes on.

Generate More Revenue for Your Dealership 

Even though used car prices decreased for a few months in a row earlier in 2022, prices are still at a historical high. Despite the high price tag, the demand is still there—especially for lower-priced cars and fuel-efficient vehicles. Some ways to maximize your dealership’s profits moving into the second half of the year are marketing to a wider geographic audience, sourcing high-demand vehicles, and considering your customer’s trade-in values when determining the final contract.

Ready to source quality inventory to generate more revenue for your dealership? Register with ACV Auctions now to get in on the action!

‍

Sources

1. NASDAQ. “US Used Car Market Finishes Strong in 2021: What's Up for 2022?” Retrieved June 2022 from https://www.nasdaq.com/articles/us-used-car-market-finishes-strong-in-2021%3A-whats-up-for-2022  
2. KBB. “Despite Soaring Prices, Americans Bought Record Number of Used Cars in 2021” Retrieved June 2022 from https://www.kbb.com/car-news/despite-soaring-prices-americans-bought-record-number-of-used-cars-in-2021/
3. YAA. “Every Automaker Impacted by the Ukraine Conflict (Updated)” Retrieved June 2022 from https://joinyaa.com/guides/automakers-impacted-by-the-ukraine-conflict/
4. CNBC. “AUTOS Used-car prices are down from record highs, easing the impact of inflation” Retrieved June 2022 from https://www.cnbc.com/2022/05/06/used-car-prices-are-down-from-record-highs-easing-the-impact-of-inflation.html
5. YAA. “Used Car Price Trends for 2022 (Updated Weekly)” Retrieved June 2022 from https://joinyaa.com/guides/used-car-price-trends-for-2022/
6. YAA. “Every Automaker Impacted by the Ukraine Conflict (Updated))” Retrieved June 2022 from https://www.zerosum.ai/blog/what-you-can-expect-from-the-used-car-market-2022
7. NIKKEI Asia. “Foxconn raises outlook, saying supply chain situation improving” Retrieved June 2022 from https://asia.nikkei.com/Spotlight/Supply-Chain/Foxconn-raises-outlook-saying-supply-chain-situation-improving
8. Edmunds.” Lovestruck Car Shoppers Willing to Travel Farther Amid Inventory Shortage” Retrieved June 2022 from https://www.edmunds.com/car-news/lovestruck-car-shoppers-willing-to-travel-farther-amid-inventory-shortage.html 
9. CoPilot. “CoPilot’s Used Car Price Premium Index” Retrieved June 2022 from https://drive.google.com/file/d/1NeJFA8d_-dRNVhgHTt24uDzci9he2qhC/view
10. CarMax. “127 Best Used Cars for 2022: Ranked by Type & Price” Retrieved June 2022 from https://www.carmax.com/articles/best-cars-ranking
11. FRED. “Consumer Price Index for All Urban Consumers: Used Cars and Trucks in U.S. City Average.” Retrieved June 2022 from https://fred.stlouisfed.org/series/CUSR0000SETA02 

‍