In 2022, we have seen demand for used cars increase as a result of very limited new vehicle inventory and high prices. Now, used cars are becoming cheaper yet harder to afford in many cases. Here are the most important factors auto dealers must consider over the next few months.
Rising financing costs could hinder demand
Previously, the high prices of new cars sent more people over to the used car market, looking for a cheaper alternative. Now, as of October 31, used car auto loan rates are about 9% with a 70-month average term, while new car rates are just under 6%. With higher rates, demand could take a hit as it becomes harder for Americans to afford used cars. Increased loan rates along with depreciating used car prices could also put many consumers at risk of defaulting on their loans.
Inventory will be more limited
For the last two months, ZeroSum data shows that used inventory has been declining. After rising in July and August, used vehicle inventory dipped a total of 1.57% between September and October, and is forecast to drop even further. On the other hand, new vehicle inventory has been rising—up 12.19% in October. Therefore, dealers should focus on selling new cars more quickly to receive priority allocation from their manufacturer.
Prices will decrease
Since interest rates are increasing and consumer demand has been lower than usual, used car prices are back on the decline. Since September, used vehicle prices have dropped 2.17%, bringing the average price of a used car down to $33,502.
Lower average prices could help offset the rate increases for some customers, making it easier for them to buy used cars. However, lower prices mean lower profit margins for dealers. In order to close the gap, dealers should focus on turning new car inventory and strategically acquiring and pricing their used cars. Tools like MarketAI equip dealers with key competitive and pricing data. ZeroSum uses this same data to publish our monthly Market First Report.
For more detailed inventory and pricing trends, read the most recent Market First Report.