Forbes: Some Relief On Affordability: Used-Car Prices Still High, But Trending Lower

Prices for used cars and trucks are still crazy-high, but they’re not quite as high as they were a couple of months ago, according to the latest analysis from wholesale auto auction firm KAR Global.

That could signal some normalcy, in what’s been a wildly abnormal market for both used and new vehicles for the last 18 months or so, due to the coronavirus pandemic, a shortage of new and nearly-new vehicles, and a shortage of the computer chips used in manufacturing new vehicles.

Uncharted territory is the term a lot of analysts use to describe the present state of the auto retail industry, with high customer demand despite the sky-high prices. This past spring, used vehicles were actually appreciating in value, something that’s virtually unheard-of.

For the past couple of months, though, used-car values stopped increasing. That’s partly because of normal seasonality — used-vehicle values typically peak in the spring, around tax-refund season, then decline as the year progresses. Today’s prices are at a higher level, but directionally, a seasonal decline in prices is to be expected, analysts said.

And it could also be that used-vehicle prices were so high, that for the narrow difference in price, some customers decided they might as well buy new, and that may have let some steam out of the demand for used.

“For the second month in a row, average wholesale used vehicle prices fell on a month-over-month basis in July, and appear to have moderated to what are still historically high levels well into August,” said Tom Kontos, chief economist for KAR Global.

“Even at these lower levels, prices are still about 20% higher than comparable prices in 2019,” Kontos said, in a pre-recorded webinar that was posted Aug. 30.

KAR Global auctions off used cars and trucks in dealer-only auctions, both in-person and online. Kontos said wholesale, used-vehicle prices are “holding” at an average of around $14,000, after peaking north of $15,000 in May.

The average, wholesale, used-vehicle price in July was $14,250, KAR Global said. That’s down 2.7% vs. June 2021. But it’s still 6.5% higher than July 2020, and 24.4% higher than pre-COVID, July 2019.

Wholesale prices are particularly high for the most sought-after used vehicles, which are three model-years old, with around 36,000 to 45,000 miles. Those are characteristics that describe used vehicles that customers turn in at the end of a lease.

They’re valuable because they usually have some of the original factory-backed warranty left, and because with factory-prescribed reconditioning, they are often sold as certified pre-owned vehicles.

So-called CPO vehicles command a premium because of the reconditioning, because of the remaining original warranty, which transfers to the new owner, and an additional CPO warranty.

Kontos said the average wholesale price for a midsize sedan that fits the CPO profile was $17,649. That’s an increase of 27.4% vs. July 2020, or 39.3% vs. July 2019. For midsize sport-utilities or crossovers, it was $28,946, up 30.6% vs. a year ago, or up 34.5% vs. two years ago.

To read the full article on Forbes, click here.