Not in the Cards: No Pricing Relief for New, Used Vehicles in 2022
Despite recent headlines touting an imminent return to more normalized pricing in the new- and used-vehicle market, a careful look at the numbers suggests otherwise, according to David Paris, director of market intelligence at J.D. Power Valuation Services.
“Looking at all the data in today’s context, it is difficult to avoid the conclusion that used pricing will remain at historically elevated levels through the majority of 2022,” Paris says.
Wholesale prices, he notes, are up 21% year-over-year in May 2022, while used retail prices have ticked up 14% compared to the same point last year. Meanwhile, wholesale volumes are down 33% for the year as dealers and rental companies engage in pitched competition to replenish their inventories. Both, Paris adds, must deal with a stubborn consumer base that appears to be committed to buying—and then holding on—to the vehicles they own.
“It all adds up to reduced availability. We are witnessing a massive—even historic—decline in inventory,” Paris says. “There are 40-50% fewer vehicles being sold through wholesale sales channels today compared to 2019. This trend continues to put upward pressure on prices. So far in May 2022, wholesale prices are up by approximately 1%. If this trend stays the course, it will mark the third consecutive month of wholesale price increases.”
On the retail side of the equation, April 2022 is already in the books as the all-time high watermark for the industry with used prices reaching nearly $31,300 per unit.
“While the first half of May has seen used retail prices drop by about $200, we haven’t seen a material and sustained decline in used retail prices, Paris says. “They are still hovering at historically high levels. The pricing data is matched by the critical days-to-turn metric, which is 15 days fewer than the pre-pandemic levels. Days to turn was 39 days in May 2022, compared with 50-53 days prior to COVID-19.”
Sluggish “New” Production Offers Scant Relief in Projected “Used” Pricing
Those hoping for lower prices will find no signs of help coming from improved new vehicle production during the next 12-18 months. OEMs continue to face tough inventory constraints, even as progress on supply chain issues appear to be on the path of resolution.
While April was the second month in a row in which the industry recorded production increases—with roughly 1.3 million new vehicles entering the market—it will take time for new supply to work its way to market and offset more than two years of supply chain disruptions.
“Combined with the 1.4 million vehicles produced in March, vehicle production is outpacing the Q3 2021 average of 1.0 million and Q4 2021’s 1.1 million. This is a great sign that production will start improving retail inventory,” Paris says.
However, J.D. Power data indicates that despite improving production, retail inventory ended April at 847,000, modestly below the industry average of 854,000 since July 2021.
“As a result, we do not expect to see a dramatic reduction in automotive pricing in 2022,” Paris says. “They will remain elevated until the industry overcomes production challenges and disruptions in the wholesale marketplace. Until then, consumer competition for limited inventory will remain fierce, perhaps driving prices higher than they are today.”
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This Intelligence Report was authored by David Paris, director of market intelligence at J.D. Power Valuation Services. Please contact us at the numbers below to connect with Mr. Paris or to learn more about the underlying research.