Throughout this year, auto prices have been erratic to say the least. Because of supply shortages and rapid inflation among other factors, prices rose over the past couple of years. But the recent rise in new inventory has curbed the demand for used cars, which is having a large effect on auctions. Wholesale prices dropped a whopping 15% in 2022, whereas retail prices only fell a fraction of that.
Why is it that auto auction prices have begun to fall, but car dealerships have not been affected on the same level? Let’s discuss the trend of auctions’ decreasing prices, and whether this signals a larger issue within the wholesale market or simply just the marketplace correcting itself post-pandemic.
Wholesale Prices on a Decline
Over the past few months, auto auctions saw a pretty big dip in wholesale prices. While it’s great for dealerships who are profiting big by buying up inventory and selling it for a greater profit than before, the same can’t be said for auto auctions. Wholesale prices have started to fall, and are beginning to normalize a bit – though they’re still higher than their pre-pandemic prices by a decent margin.
This downward trajectory will most likely continue throughout 2023, with experts predicting that the prices will steadily fall for the next year or so as new inventory continues to become available and shortages become less and less of an issue.
Retail Prices Will Eventually Follow Wholesale
So, why the heck haven’t retail prices seen the same decrease as wholesale prices?
The simple answer to this is that consumers are willing to pay the high prices that retailers are asking for. Even though manufacturers are starting to catch up by releasing new inventory, inventory shortages are still very much still a thing. Additionally, new models are now more expensive than before, and pricing many consumers out of the new car market entirely.
As a result, consumers who wish to purchase a vehicle have no other options outside of used car dealerships. Retailers are able to keep their prices high as a result. As time goes on and more and more cars flood the marketplace, retailers will likely have to begin lowering their prices, but that time has yet to come.
An Industry on its Way to Recovery
As the old saying goes, what goes up must come down. The shortages that we experienced over the past few years resulted in used vehicle prices sharply increasing, as there were few other options available for consumers. But now, with manufacturers finally starting to pick up their pace and releasing new models to the marketplace, those inflated prices aren’t going to stay where they’re at forever.
More options in the marketplace means less demand, and therefore lower prices. And while this does have a negative impact on auto auctions, it’s the natural flow of the industry and economy. The auto industry is slowly on its way to recovery, which means that sale prices at auto auctions are going to fall.
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