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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I just did a quick check on Tesla’s website for inventory they had in Canada. The inventory is looking way better than it did 6 months ago, however for the Model 3, used ones cost as much as new ones.
And for the Model Y it’s even worse… new ones are CHEAPER than the lightly used ones they have in stock.
Used vehicle prices have a lot of falling to do. But I believe we won’t see prices fall evenly across the board.
I predict Teslas will fall less than say 1st gen Nissan Leafs that you used to be able to buy for $5000 or less pre-Covid.
I also predict the Mitsubish Mirage values will drop faster than average as well. Right now I still see many dealers trying to sell those for over MSRP… and even some used ones selling for MSRP… with this being the worst example:
https://www.autotrader.ca/a/mitsubishi/mirage/brampton/ontario/5_57133038_20210330181330002
$25K for a 3 year old Mirage when a new one configured the same way would cost nearly $2000 LESS.
It’s all Putin’s fault.
Tom Petty reference A+. At this rate will just hang onto my old but great 2009 Toyotas…and hope to score a good deal after the apocalypse…
I’ve been eyeing CPO Volvo V60’s for nearly a year and I’ve seen a lot of markdowns in the past month.
Bring those Polestars down to Earth.
Cox Automotive are the wrong people to ask about used car prices. Conflict of interest. Having worked used car sales, I can tell you that they pretty much control the buying and selling process (they own KBB, think about that!). Allegedly, they have been withholding inventory to maintain market value (think the diamond industry). As far as I can tell there is no real shortage of used cars. Donut Media also has good intel on this.
Really?! How wise is it to hold/service inventory on a (usually) depreciating asset?
While the author talks about pre-Covid used car pricing, I still yearn for the days of pre- Cash for Clunkers pricing. The CfC government boondoggle wiped up much of the lower used car supply. Which drove up pricing for all used cars. And never since have used been the deals they used to be.
Post-COVID car prices are the sole reason that I’m still driving around in my daily, an 8 year-old Chevy Cruze with 150K miles on it that I bought new. At the rate things are going, I slapped a new set of Michelins on that bad boy and fully expect to drive it another couple years.
I sympathize with people who are forced into the market by circumstance but just can’t comprehend why anyone else without beaucoup bucks would want to participate right now. Everything is just stupid. CPO cars 2-3 years old used to be 1/3 off of MSRP. Now they’re damn near the same, even after falling from the peak.
This isn’t sustainable. As supply chain issues get straightened out, manufacturers will start cranking out more cars and eventually drive down the price of both new and used. Sure, they said they’d practice greater inventory discipline. But who actually believes that over the long-term? These things always move in cycles. I’d caution though that between the COVID disruption, subsequent boom and just overall weird macroeconomic picture, when things will return to truly “normal” is anyone’s guess. Wouldn’t be shocked if it takes a couple more years.
Used car prices will drop just a little but not enough to matter. The manufacturers have learned not to over produce. Blaming inflation and supply issues is a worn out song. The best way to sell something is to tell people they can’t have it. The saddest part is, people are willing to pay more for used cars than new ones.
I consulted 3 experts, one said the prices would stay the same, one the prices would increase and one the prices would drop. I will check in a year which expert I will go with
I am seeing a drop, not huge, but a drop. The biggest problem is people/dealers who brought during the highest point of the curve trying to unload the inventory for what they paid for it, reality be damned.
It is not my fault you paid too much for the car, I am not here to make up for you mistakes. Your 2002 Ford Ranger Base model is not worth 15k (actual ad I saw).
This is what I’m seeing, too. Dealers that paid too much on trade or just buying stock are still trying to sell those less-desirable vehicles for WAY more than the market can justify right now.
Similar with home sales in my area. Prices were bonkers up through this summer, but have dropped almost 30% since. There are 4 homes in my neighborhood alone that have been sitting empty with real estate signs in the front yard since summer. I know several families bought new homes and moved already, thinking they were about to make a killing selling their old house. Inspections and stipulations are finally back on the table, too.
Are you also suggesting that paying $25K for a 3 year old Mitsu Mirage is a total fucking ripoff and the people at the dealer should go fuck themselves?
https://www.autotrader.ca/a/mitsubishi/mirage/brampton/ontario/5_57133038_20210330181330002
LOL
2022 was bad. Thinking about it, I’m pretty sure it was the first year I didn’t either buy or sell a car since 1991.
I was ready to pull the trigger on a new Bolt. However, I don’t really need a new vehicle at all, my current cars are running fine, and now I’m thinking it may be more fun to throw some money at my ’71 Sedan de Ville this spring to get it back in the daily category once again. The waiting is tough, but, keeping the powder dry a bit longer.
Bolt versus Land Yacht, Bolt versus Land yacht…what to do?
I love it! Plus I’m envious of your Cadillac.
Thanks! I’ll always prefer piloting a Land Yacht, but being able to completely side-step high gas prices when the budget calls for it is a luxury all its own. I currently have a 2012 Chevy Volt for that purpose, and that’s what the Bolt would replace, except the Volt is thankfully still doing fine.
I seriously considered unloading 2 of my fleet just because values were high and I had other cars to drive, but I think People right now are too much a pain in the butt to even consider dealing with.
I completely support making the Caddy the daily.
Nice, dailying land yachts is fun 🙂 Once I get my 66 T-bird back from the mechanic, I think I’ll be in the same position of needing to daily drive it to work until I see something I like for a reasonable price on the used market.