Used Vehicle Pricing Update: Costs Are Coming Down
The used vehicle market has been experiencing a period of extreme volatility. Used vehicle prices have peaked and it appears that a market more favorable to buyers is emerging.
The used vehicle market has been experiencing a period of extreme volatility. Supply chain issues plunged production levels to record lows as part shortages interrupted the manufacturing process of new vehicles. Dwindling supply in the new vehicle market caused more buyers to pounce on the used car market sending used vehicle prices soaring.
In 2021 car prices inflated to unprecedented levels. High demand and low supply caused a buying frenzy as vehicles disappeared off sales lots faster than they could be restocked. Car dealerships found that they had no problem unloading their inventory even at inflated prices.
Used vehicle prices have peaked and it appears that a market more favorable to buyers is emerging. There are definitely deals to be found but it’s not for the faint of heart. Is this the right time for you to buy a used vehicle?
Wholesale Prices Have Dropped
During the inflation in 2021 it was easy to blame the dealerships for charging overinflated prices but that is not a complete picture of the situation. Low supply drove prices up at used car auctions making it necessary for dealers to sell the vehicles for more money. This trend has finally changed and the market has seen a significant price correction.
The Manheim Used Vehicle Value Index owned by Cox Automotive tracks prices of used vehicles sold at wholesale auctions. In 2022 prices declined by a massive 14.9%. It was a period of the sharpest and most persistent declines seen over a single year.
This is great news for buyers. Reduced costs for dealers means more opportunity to be competitive in their market. It’s no secret that lowering prices brings more buyers and dealerships have already begun to do just that.
More Price Decreases Expected
The greatest reduction in wholesale prices has probably already been observed but it is expected that depreciation will continue this year. The current forecast predicts that by the end of 2023 wholesale used vehicle prices will have dropped by another 4.3% since December 2022. Most of that is expected to occur in the first half of the year.
The second half of 2023 is where the market is expected to stabilize. For buyers this is when retail price trends should settle to reflect the new wholesale prices but that doesn’t mean good deals can’t be found now. This is the time to look for bargains and negotiate for the best price.
Interest Rates Are Rising
It may be tempting to wait for used vehicle prices to drop further but you may not be able to afford the time. While used vehicle prices have been dropping, interest rates have been on the rise. The economic uncertainty may cause further increases and that means a higher cost of borrowing.
Car loans are tied to the prime rate. The interest rate you are charged is based on the prime rate as well as personal factors such as borrowing history and financial situation. While you may be able to get a better deal on financing with good credit and a steady source of income, the prime rate is fixed.
An increase to the prime rate means higher monthly payments or a longer loan term and more money in interest throughout the life of the loan. The Bank of America prime rate has been climbing steadily. In March 2022 it jumped up to 3.5% from the 3.25% set in March 2020. Since then it has seen several adjustments upwards all the way to 7.5% where it now stands.
What This Means For Buyers
It’s an interesting time to be shopping for a car. At the junction of used vehicle prices dropping and interest rates rising a clever buyer can make a great purchase on the vehicle as well as the loan. It’s just a matter of doing the work and looking in the right places.
Well established car dealerships are more likely to cling to higher prices because they can afford to watch a few customers walk away. Smaller dealers and ones that are just starting out will be lowering the prices to lure buyers their way. This is their chance to compete with the big guys and make a name for themselves.
It might take some legwork but if you make the effort you can find a great car at a reasonable price. Dealers will be trying to make as much profit as possible but it’s not the time to be timid. Remember that those vehicles didn’t cost as much to buy so be bold when you negotiate and be prepared to walk out the door and look for your dream car elsewhere.
Auto loans are getting more expensive but there are still deals to be found. This is definitely the time to shop around to get the best price on financing. You probably wouldn’t buy the first car you see and you should have the same attitude towards your car loan.
Visiting local banks and financial institutions is a good idea as they often have the best rates. Dealerships may overcharge but sometimes they have excellent promotions that you can take advantage of. You will be buying your car there anyway so you might as well ask what they can do for you on financing.
The easiest way to shop around for car loan financing is online. Websites such as myAutoloan allow you to compare multiple offers quickly, easily, and with no obligation. If you do find the right deal for you, just accept the offer and get your money without having to leave home.
If you have the cash to buy a vehicle outright then you may want to wait until the second half of 2023 to make your purchase. On the other hand, if you’re planning on financing now might be the best time to get that car. As used vehicle prices drop, interest rates are on the rise and it might be a while before you can get an incredible vehicle and an amazing deal on a car loan.