Used Car Inventory Dropping as Prices Keep Falling

February 2, 2023 | Industry News

When it comes to new vehicles two things are moving up: prices and inventory levels. However, it seems potential buyers tired of seeing a still-limited inventory that costs more moved to used vehicles in February as used-car inventory levels dropped 7.6%.

Used car inventory is expected to decline by 7.6% in February due to lower prices.

According to automotive data provider ZeroSum, dealers saw the biggest change in used vehicle inventory levels since April 2021, to just over 1.5 million vehicles. This is a significant drop, especially when compared to the 3.41% increase in inventory in January. 

ZeroSum predicts by the end of the month, this number will decrease even more to just 1,421,241 vehicles available. In the recent past, declining inventory levels — both new and used — meant rising prices. However, the group says that’s no longer so in the case previously owned market.

For the sixth consecutive month, used vehicle prices will drop — in this case to an average of $31,365, which is a decline of 1.56% in February. This is compared to another expected monthly increase for new vehicles to $49,655, ZeroSum officials noted. The jump is small, just 0.54%, but expected prices still rose despite new vehicle inventory also rising.

“At the start of the month, inventory was up 0.81%. By the end of February, ZeroSum expects new vehicle inventory to sit at 1,665,779 vehicles,” the company said in its latest newsletter. “This is the sixth month in a row that there have been more new cars on the ground, further demonstrating supply chain recovery.”

What does it mean?

In short, buyers are looking for better deals and finding them in the used car market — something they were unable to do as recently as six months ago. Additionally, after the most recent interest rate increase from the Federal Reserve, the average interest rate on a five-year loan for a new car is 6.25% while it’s 10% for a used vehicle, meaning the interest rate penalty for buying used is more than offset by the price reduction.

It means that the trend could reverse, and finding a used car value may begin to get more difficult in the next few months, according to multiple analysts.

“We have diverging markets today. New-vehicle prices remain high while used retail prices are now in decline,” said Charlie Chesbrough, senior economist at Cox Automotive. “New inventory is slowly stabilizing while used supply is falling. 

“However, I wouldn’t be surprised to see this situation change later in the spring. With many affordability-seeking vehicle buyers leaving the new market for the used, dealers may find they have too little used inventory, and price declines may reverse. And, OEMs may find they have too much new-vehicle inventory and be forced to be more aggressive with incentives to boost sales.”

ZeroSum suggests “dealers should focus on turning cars faster to avoid sacrificing profit.” For buyers on the hunt for a used car, they may find some very willing dealer partners in the near term — at least until there’s a shift in pricing. 

Finding an EV not too hard

Inventory levels for electrified vehicles, especially battery electrics, continues to rise, meeting and exceeding demand. 

Electric vehicle inventory increased for the fifth straight month in February, gaining 7.87% overall. Purely electric vehicle inventory added the most, up 15.63%, followed by gas/electric hybrid vehicle inventory which gained 6.05% and plug-in hybrid inventory which gained 1.62%, ZeroSum officials noted.  

Read the Full / Original Story: