After a rollercoaster year of used car prices, we’re well down from peak silliness but still far, far above pre-pandemic pricing. Add in potentially higher interest rates, a new car supply backlog, and high trade-in values withering, and it can be hard to make heads or tails of what might happen to the used car market in 2023. Thankfully, you don’t need to guess, because scores of analysts have done some legwork. Here’s what the experts think will happen to used car pricing in 2023.
Here’s the topline take: There’s no real consensus here, but there is a general sense that prices will broadly fall this year. Those we spoke to and quoted definitely agree that prices will go down, but how far things will sink is about as clear as mud.
Let’s start with the Manheim Index. In case you’re not familiar, Manheim is one of the world’s largest wholesale car auction companies. While values quoted in the index are wholesale rather than retail, sheer volume means that there’s pretty good weight behind them. Analytics firm Cox Automotive crunches Manheim’s numbers and has some predictions for 2023.
“The pre-pandemic levels will likely never return, but all indicators point to reaching an equilibrium in the second half of 2023,” Cox Automotive Chief Economist Jonathan Smoke said of used car prices in a news release. So what would this “equilibrium” look like? Well, the brains behind the Manheim Index predict a 4.3 percent year-over-year decline by December 2023, which isn’t as massive as some of us used car hounds hoped. What could be to blame? Surprise surprise, constrained supply.
Late-model used car supply is fairly dependent on three-year leases coming to term, and 2023 marks three years since the COVID-19 pandemic kicked off. While the new car shortage didn’t reach its peak in 2020, tight new vehicle supply at the time means that we could see late-model used car screwiness start to appear in just a few months. Higher late-model used car prices could drag the pricing of older models up with it, potentially stalling used car price decline.
However, it isn’t all bad news. Cox Automotive reports that used car retail prices should fall into a normal relationship with new car prices in the second half of 2022, which means that paying a premium over new to have an in-stock gently-used car might soon be a thing of the past.
Mind you, Cox Automotive is just one team of experts, so let’s look around to see what everyone else is saying. If you’re hoping for big used car value drops, you might fall more in line with J.P. Morgan Research. The analytical wing of the investment banking firm expects used car prices to fall by 10 to 20 percent on the whole through 2023. It’s an aggressive prediction, so rising vehicle supply and demand destruction are expected to play a role in bringing things closer to earth.
According to Forbes, Goldman Sachs is also betting on the depreciation train, expecting used car price declines to continue. While specific numbers weren’t released, Goldman Sachs seems to be predicting more than just a flash in the pan, as the firm reckons dropping used car prices will help keep a lid on overall inflation.
Let’s circle back to demand destruction for a second to explain exactly what that means and what’s causing it. To put it simply, more and more car buyers are sitting on the sidelines, waiting for some semblance of affordability. So what’s affecting affordability? Prices obviously play a huge role, but so do interest rates. Federal interest rate hikes mean that it’s now fairly common to see used car interest rates from traditional lenders of nine percent or greater.
High interest rates affect monthly payment affordability and since the majority of Americans finance their rides, this leads to more shoppers on the sidelines. As prices come down, more and more shoppers will get into the market, possibly creating a stabilizing effect.
It’s also worth noting that used car price changes likely won’t be linear. December through January are usually fairly stable, there’s typically a bump in consumer demand come tax return season, and things often heat up in the summer since winter’s a fairly miserable time to shop for vehicles in most parts of the country. However, the car market right now is anything but typical, so any of these typical events could be tempered.
Regardless, it’s looking like deals will get better, so long as you’re willing to wait—or keep waiting. Yeah, that’s not a huge change from last year’s lookout, but we’re still very much in a bubble. If you absolutely need a used car soon, cast a wide net and consider arranging the financing through a credit union for an advantageous rate if you need something newer.
If you don’t need a car soon, it’s probably best to not buy one, regardless of how the itch weighs on you. As Tom Petty sang, “The waiting is the hardest part.”
(Lead photo credit: “Used car dealer in Miami” by ryantxr is marked with CC BY 2.0.)
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