Why Used Wholesale Car Prices Have Plunged, But Not Retail

If you’ve been paying attention to the auto industry lately, then you may have noticed that the prices of used vehicles have finally started to sharply decline – but only at the wholesale level, that is. Wholesale used car prices fell 15.6% over the course of 2022, with their prices currently the lowest they’ve been since August 2021.

This is significant, as it’s one of the first true signs of the used car marketplace returning to normal. But now that wholesale prices are finally going down, everyone is now wondering why this only seems to be the case for auto auctions, and not retailers. Today let’s take a look at the used car market, and address the biggest reasons for why there is such a big pricing disparity between wholesale and retail car prices.

Increased Availability of New Cars, Higher Interest

So firstly, we need to answer the first part of this question: why have wholesale car prices fallen?

The answer is fairly simple: supply of new vehicles has increased. Because of the increased availability of many new cars, there isn’t as much demand for used vehicles, and therefore wholesale prices are beginning to calm down. You can also attribute the high interest rates for reducing the demand for cars in general.

Many consumers are becoming unwilling to purchase cars, both new and used, because of higher interest rates – even vehicles that have fallen in price are still more expensive, because of the increased interest rates. Thus, demand has been driven down which is lowering wholesale prices.

Dealers Aren’t Budging

But despite wholesale prices falling this year, retail prices remain consistent. Now, to answer the second part of this question: why are retail prices still so high? Shouldn’t they have fallen alongside wholesale prices?

In short: Yes, on paper vehicles sold by dealerships should have fallen already, but because of a few factors, they haven’t yet. The biggest reason is simply the fact that retailers don’t need to. Despite lower sales figures, car dealerships are still profiting. There certainly is pressure on them to lower their prices, but as long as they’re making money, there is little to no reason to slash retail prices. But that may very well change in the near future.

An Ever-Changing Market

As the last few years have illustrated, the market is ever-changing due to various outside factors such as the somewhat unpredictable state of our economy and a supply chain that is still recovering. Wholesale prices are down, and because of that, people should expect retail prices to do the same as a result. When that happens is still unclear, however.

Dealers will have to lower their prices eventually, as lowered consumer spending will eventually dictate the prices.

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Published on January 3, 2023