Year End Report: 2023 Wraps Up with 5% Dip in Used Car Prices

Jan 01, 2024 07:46 PM EST

GREEN RENAULT SEDAN — (Photo : PEXELS/DANIEL SPASE)

As everyone bids farewell to 2023, a golden opportunity emerges for savvy buyers: used car prices drop by about 5%. This is such a positive change emerging: steadier supply chains and increased new car production are used car prices drop. Surprisingly, high interest rates have caused many buyers to delay their used car purchases, adding to the price drop.

Great Time for Purchasing: Used Car Prices Drop

This dip signals a great time for those eying to buy a new car. Looking ahead, predictions indicate that this trend will continue, making used cars even more budget-friendly in 2024. It's good news for consumers hunting for affordable options in the car market.

Following a surge in new and pre-owned vehicle costs amid the pandemic, the used car industry is slowly recovering, witnessing an approximate 5% decrease in average prices throughout 2023. According to the IseeCars study, numerous sought-after used models are presently more economical compared to their prices at the conclusion of 2022.

The Daily Sentinel shared details about this development in the automotive market.
Industry insiders predicted a drop in used car prices for the previous year-2023. A 60% surge in used car prices by year-end compared to years before the pandemic was revealed in 2022 Black Book report. The excessively high prices in 2021 and 2022 were bound to lose momentum. Thus, hinting at an imminent market downturn. As 2023 ends, these predictions came true.

Meanwhile data from CarEdge's report, retail prices for cars are gradually and consistently declining. By September 2023, retail prices for used cars had erased the overall gains made in the year, reverting to the prices observed at the year's outset.

Although hybrid and electric vehicle (EV) prices continue to stay higher than the general market, there's a narrowing gap. Presently, the average transaction price for an electric vehicle stands at a 14% increase compared to the overall market.

Moreover, prices of used cars are dropping, marking a shift towards more reasonable rates, a trend expected to persist in the future.

Reasons: Prices of Used Cars are Dropping

Reports revealed why used cars prices drop. Various reasons are cited why their prices of used car happen.

1. Resolved Issues on New Car Supply Chain

Supply chain disruptions in the new car market drove up prices for used cars during the pandemic. The scarcity of new cars forced many to turn to used options. This surge in demand depleted used car inventories, escalating prices rapidly.

Yet, improvements in the new car supply chain are underway. While inventory levels might not match pre-pandemic levels everywhere, the situation is gradually improving. With attention shifting back to new vehicles, it could potentially free up used car inventory, especially in regions where preference for pre-owned cars remains strong. As 2023 nears its end, these shifts contribute to the ongoing drop in used car prices.

2. Change of Attitude Towards Purchasing Cars

The pandemic shifted car buying behaviors significantly. With remote work and stay-at-home orders, the necessity of owning a vehicle diminished compared to pre-pandemic times of regular commuting and leisure travel.

Consequently, fewer people sought to replace their cars, reducing interest in purchasing newer models. Moreover, economic uncertainty discouraged those with fully paid vehicles from taking on new auto loans. This shift led to reduced turnover in used car sales, limiting available inventory. As 2023 closes, these changes continue to impact the landscape, contributing to dropping used car prices.

3. Rising Interest Rates

Rising interest rates affect auto loans and used car prices. Dealerships, aware that higher rates deter buyers, adjust their pricing to maintain affordability. Lowering used car prices offsets the impact of higher rates, making loans more manageable. This strategy boosts demand and sales, creating a win-win situation for buyers and sellers alike.