Ever since the start of the worldwide pandemic in 2020 and the various other economic disruptions that followed it, used car prices have had their largest annual price increase than ever before: from June 2020 to June 2021, prices rose an astronomical 45%, according to the Consumer Price Index. Since then, prices barely budged, with other factors such as high inflation and supply shortages causing the prices to remain high.
But if recent sales numbers are anything to judge by, then it’s safe to say that prices are now making a significant turnaround. Throughout 2022, wholesale prices dropped 15% while retail prices dipped by 8.8% as of this past December. The average used car went from the record high price of $31,095 in April 2022 down to $29,533 in December, falling over $1,500. Here are the leading causes of this change, and how it may impact auto dealers.
Undoubtedly, the biggest reason for the drop in used car prices is the increased supply of new vehicles. The limited supply of new vehicles caused a jump in the average price of used cars, since many buyers that would have in any other case purchased new instead turned to the used car market. Naturally, this resulted in a sharp increase in price due to the overwhelming demand.
But with manufacturers now beginning to catch up and producing more new cars, it makes complete sense that prices are going back down again; the supply is now catching up with the demand, and as a result the price too is going back to more normal numbers. Though dealers were resilient to the market for a while and have stubbornly kept prices raised, it seems that the pushback from consumers has finally made
Another major reason for this dip in used car prices is the high interest rates – with the Federal Reserve raising its benchmark interest rate again back in December, interest rates are increasing at a faster pace than we’ve seen in the last 40 years. Understandably, this has made consumers hesitant to make large purchases, particularly homes and automobiles. And while manufacturers offer lower rates for new cars, used vehicles tend to have higher interest rates.
Though the ticket price of used cars are now lower, they can still end up costing just as much or possibly more than their new counterparts when factoring in the higher interest. On average, the APR for a used car loan is now 9.14%, while new cars are sitting at 5.16%.
But even with the retail cost of used vehicles now finally on the decline, it isn’t all bad for dealerships. CNBC reports that consumers are still paying $7,100 (or roughly 30%) above the normal cost. This is still allowing dealerships to make more back per vehicle than they did in the past, but at the same time used car sales are going down. Just as used car prices are falling, so are their sales numbers; it is estimated that used car sales will fall 10%-20% in 2023.
Because of this, car dealerships must now do everything in their power to help drive sales through whatever means necessary. Effective marketing is the key to a business’ success, regardless of the industry, so that’s a great place to state; tactics such as referral marketing, obtaining customer testimonials, good word of mouth, and having a strong online presence are all great ways to increase sales.
Speaking of a strong online presence, your dealership may also want to consider offering shipping to customers, in order to reach a wider demographic and to simply cater to consumers’ needs. One of the most effective tools for managing your inventory and moving cars is Super Dispatch.
Super Dispatch is a service that allows car dealerships to much more quickly and efficiently ship cars through a simple easy-to-use app. Track orders, communicate with drivers, and file paperwork easier than ever with Super Dispatch; if you’re looking to move cars faster, then look no further. Request a demo today!Published on January 25, 2023
The new way to transport cars