Analysts say used market offers compelling value compared to new, but price-sensitive or pickier consumers might not find what they’re looking for
Used vehicle prices have slightly cooled from all-time highs, but a number of headwinds continue to create unfavorable buying conditions in the used market for consumers. According to the Q1 2023 Used Vehicle Report released by the car shopping experts at Edmunds, and the data collected by Edmunds’ analysts:
- Used car prices remain historically high. The average used vehicle transaction price in Q1 2023 dipped by 6.4% year over year to $28,381, compared to $30,329 in Q1 2022, but is up 44% from Q1 2018’s average used transaction price of $19,657.
- The $20,000 used vehicle is becoming harder for car shoppers to find. The share of used vehicles sold for under $20,000 was 30.6% in Q1 2023 compared to 60.5% five years prior. In the new vehicle market, the share of vehicles sold for under $20,000 was less than 1% in Q1 2023.
- The supply of used vehicles is being squeezed across the board, which is contributing to increased demand and elevated prices in the market:
- Lease volume dropped significantly to 559,000 vehicles in Q1 2023 from 1 million vehicles in Q1 2018.
- Trade-in volume declined to 5.5 million vehicles in 2022 from 6.2 million vehicles in 2018.
- Off-rental vehicles, which have historically been a steady source for near-new used vehicles, are now much older and pricier. The average off-rental vehicle age climbed to 3.0 years in March 2023 from 1.9 years in 2019, and the average price climbed to $28,916 in March 2023 from $15,829 in 2019.
“The good news is that used prices have softened enough in Q1 to offer some relief for consumers getting pushed out of the new market. The not-so-good news is that the used vehicle market continues to be challenging for car shoppers since there are fewer vehicles available and demand is keeping prices historically high,” said Ivan Drury, Edmunds’ director of insights. “Consumers returning to the used market for the first time in years might find conditions a bit shocking: Not long ago, $20,000 was seen as an acceptable amount to spend on a used car to get an optimal blend of miles and age. In today’s market, $20,000 puts consumers into a much older or much higher-mileage vehicle.”
A positive note for vehicle owners
Edmunds’ latest report highlights one bright spot for drivers who have held onto their vehicle the past few years: They’ve virtually driven for free over the last few years due to elevated used car values. For example, in Q1 2023, the average mileage of a 5-year-old (2018 model year) Toyota Camry was 60,565 miles (a 130% increase compared to an average of 26,288 miles in Q1 of 2020), but instead of a price decline, the average transaction price of the vehicle increased by 8% in Q1 2023 to $21,223 compared to $19,656 in Q1 2020.
Strategies for shoppers reentering the used market
To help consumers navigate the challenging dynamics of the used vehicle market, Edmunds experts share three critical car shopping tips:
- Know your trade-in value. As a used-car owner, extra equity from your trade-in continues to be one of your biggest negotiating tools in today’s market. Before you begin shopping for a vehicle, get a free appraisal for your vehicle on sites like Edmunds so you can factor your trade-in value into your budget. You can also keep tabs on the changing value of your trade-in with this tool on Edmunds.
- Shop around for preapproved financing as diligently as you’re shopping for an actual vehicle. Interest rates for used vehicles are hovering near record levels and significantly driving up costs for the majority of consumers. Make sure to seek approval from more than one lender to see what you qualify for. With a preapproved loan offer in hand, you can quickly decide whether the finance rate the dealership offers you is the better deal.
- Flexibility and thoroughness will be critical. If you’re accustomed to buying near-new (1- to 2-year-old) vehicles, consider shifting your sights to slightly older (3- to 5-year old) vehicles. Just be diligent with this approach: Make sure to buy from a reputable dealer that offers a detailed vehicle history report, consider paying a mechanic to conduct a prepurchase inspection, and test-drive the vehicle before your purchase.
“Extra diligence, patience and research is more critical now than ever for used-car shoppers,” said Joseph Yoon, Edmunds’ consumer insights analyst. “With demand and prices still high, shoppers really need to be active in search of the deal they desire and be prepared with an understanding of vehicle availability, financing options and their own budget long before they step into the dealership.”
Edmunds analysts note that used vehicle prices are likely going to stay elevated through the rest of 2023 unless new vehicle sales take a turn.
“If new car sales stall out, automakers and dealers could leverage heavier incentives to entice consumers into new purchases, which would in turn place downward pressure on used car values,” said Drury. “But since most automakers have been deliberate in aligning vehicle production and demand to avoid the inventory glut issues they faced prior to the pandemic, consumers probably shouldn’t count on any major bargains or discounts through the rest of the year.”
Read Edmunds’ Q1 2023 Used Vehicle Report here.