The new-vehicle shortages of 2021-2022 now mean lower supply to the used-vehicle market, amid solid demand.
By Wolf Richter for WOLF STREET.
Used-vehicle prices, which had spiked over the two-year span 2020-2021 by 65% on the wholesale side and by 55% on the retail side, provided rocket fuel to inflation. Then, as prices careened down in 2022 through 2023, giving up about half of the wholesale price spike and about a third of the retail price spike, they contributed to the sharp deflation in durable goods that helped decelerate overall inflation. But this drop in used-vehicle prices petered out in 2024, amid solid demand facing tight inventories due to reduced supply from rental fleets and lease terminations.
Prices of used vehicle sold at auctions across the US dipped a little in December from November, both seasonally adjusted and not seasonally adjusted, but dipped less than in December 2023, which turned the long series of year-over-year declines into year-over-year increases for both measures for the first time since August 2022, when the crazy price spiral had begun to unwind.
Seasonally adjusted, prices in November had inched up to the highest level since October 2023, and in December, backed off by $89, to the second highest level since October 2023 (red line), according to the Manheim Used Vehicle Value Index, which is adjusted for changes in mix and mileage. Manheim is the largest auto auction house in the US and a unit of Cox Automotive.
On a year-over-year basis, these first year-over-year upticks after a long and steep series of year-over-year declines that had maxed out at about 15% twice – in November 2023 and in March 2024 – indicate that this crazy pricing behavior has now settled down into some sort of normalcy, and that used-vehicle prices no longer contribute to the cooling of inflation, and we have already seen that.
Prices are still too high, by powertrain: ICE and EV.
Used ICE-vehicle wholesale prices had spiked by 64% in 2020-2021, but used EV prices had spiked by 145% over the same period, a testimony of the crazy behavior by buyers, armed with free money, such as to-be-forgiven PPP loans. This kind of stuff should have never happened.
Prices have since then come down, but not nearly enough. ICE-vehicle prices (blue) are still 31% higher than they’d been at the end of 2019, and EV prices are still a massive 74% higher (red).
This is an example of the “inflation shock,” as it’s now called, that consumers are still dealing with:
Dealers buy at these auctions to replenish their used-vehicle inventories. Supply comes from rental fleets that sell some of the vehicles they pull out of service, from finance companies that sell their off-lease vehicles and repos, from corporate and government fleets, other dealers, etc.
So prices are still very high, but they have stopped falling amid tight supply and solid demand. Supply is tight because automakers, waylaid by semiconductor shortages, had cut production globally in 2021 and 2022, causing new-vehicle sales in the US to plunge as dealers ran out of vehicles to sell.
Roughly 6 to 10 million fewer new-vehicles were sold in the US over the two-year period, and they’re now missing from the national fleet, and that shortfall has begun to migrate to the supply of used vehicles.
Rental fleets form part of the supply to the used-vehicle market about 1-3 years later when those units get taken out of service. But in 2021 and 2022, they couldn’t get enough new vehicles for their fleets, and so now, supply from rental fleets is falling short.
And leasing activity in 2021 and 2022 plunged, and so the number of leases that are now maturing has plunged, and so supply from leasing companies, when they sell the two and three-year-old off-lease vehicles at auctions, has plunged.
These used-vehicle supply issues, a consequence of the new-vehicle shortages in 2021 and 2022, will drag into 2026.
Retail inventories are tight amid supply issues and solid demand. At the start of December, inventory at used-vehicle dealers remained at about 2.18 million units, roughly unchanged from the prior month, and down by about 26% from the same period in 2019, according to data from Cox Automotive.
Used-vehicle retail sales have risen by the double-digits year-over-year over the past few months, and in December by 13%, based on observed changes in vehicles tracked by vAuto, a unit of Cox Automotive.
Pushing up into inflation figures.
From the beginning of 2022 through the summer of 2024, the CPI for used vehicle plunged by 28%, giving up half of the two-year price spike, which was a powerful contributor to the cooling of core inflation figures. But that ended in mid-2024.
CPI for used vehicles, which lags wholesale prices by a couple of months, bottomed out in August and has since been rising, seasonally adjusted and not seasonally adjusted. Over the three months September through November, the CPI for used vehicles, seasonally adjusted, jumped by 5.1%, which was a big move (red). December CPI will be released next week for the next installment of this story.
Year-over-year, CPI for used vehicles was still down 3.4% in November, but over the next few months, the year-over-year readings too will turn positive, just based on where they’d been a year earlier.
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I would be hard pressed to come up with ANY vehicle sold in America the last few years I would even want.
Now,let me at some overseas cars and especially trucks without import hassle and I might be interested.
Me daily driver getting very long in the tooth,looking to find if possible a diesel rabbit from the 80’s with standard,had one ages ago and loved it!I would also be open to a rear wheel drive Celica with 20-22R motor in good shape.
Till then,stick with me built up 4×4’s from the 80’s.
Sometime in the 80’s sadly the era of simple vehicles died. My first car was a 78 Gremlin followed by a 79 Firebird. Most of which even as a teenager I could do most of the work myself. It would be nice to see a return to a lower tech offering that provides 90% self-repair options.
You must live somewhere that things don’t rust. I have a 90s minivan and a TDI wagon parked for the winter or else road salt would eat them alive. If you’re in the market for 80s vehicles, then look at legitimate importers because they only have to be 25 years old to be eligible for import.
Dave,live in north east so am very aware of having cars down3-4 months yearly.That said,I do under oil the daily drivers and really since I no longer plow and am semi retired just have no need to drive in snow short of a true emergency.
I do buy out of other parts of the country,have family/friends in Cali. and Az. but even there the old stuff fading.
Really like the look of the basic Toyota hi lux but would have to smuggle in somehow!
BMWs simply keep getting better and better all the time and BMW has a spectacular array of new vehicles for sale as well as wonderful classics that keep going for higher prices every day on sites like BAT. I would you embrace the future and look for a truly superb car or cars from BMW which has always made the ultimate driving machines.
Hi Wolf. I can confirm that this is playing out just like the charts at my dealership. We leased so few cars in 21-22 that lease returns have pretty evaporated. It started to get better in 23, but most of the lease deals were on EVs because the deals were so sweet. They were mostly 24 month leases. Those cars will start to come back this year. The off lease prices are about 50% of the original MSRP. So there will be some good deals. My guess is that this will bring some of the pressure down on the used EV pricing later this year.
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I had heard it would take 3-5 years for used cars to normalize. Still another year at least to go.
I also wonder if/how the new administration will change EV subsidies and what effect that might have on prices. I’m guessing that either MSRP on EVs will drop a bit or fewer EVs will get sold if subsidies are reduced/removed. They’re still a luxury item though, so maybe it won’t make much difference on the mid- to high-end models.
Wolf – I’m in the auto industry. While not directly impacting 2025, we are expecting to see a 5x increase on EV lease returns come 2026. Honda, Chevy, etc. running $99/mo. or $129/mo. leases these last 2 years will cause a HUGE glut of EV inventory in the next year or two.
Buckle up, there will be a significant number of EV lease return bag holders here soon. Race to the bottom on lease pricing = race to the bottom on EV prices coming back. 100% certain that EV demand will not support this amount of lease returns. I would expect this inflationary pressure to resolve itself soon.
A “huge glut” of any used vehicles would be great to bring prices down. Prices of used vehicles are way too high, especially used EV prices which are still sky-high. I mean look at the 2022 base Model 3 with 132,000 miles that Hertz is selling for $19K, or that 2022 base Model 3 with 155,000 miles that it’s selling for $18k. These are ridiculous prices for this high-mileage iron. But Hertz is getting those prices because people are nuts and are overpaying out of their nose for used Teslas, as the chart above shows you. So a glut of used EVs would be great to bring those prices down.
But, but, but… BS? Honda just started selling EVs, LOL, it has 1 EV model at dealers right now, and it’s not making many of them, and is only selling a few of them, so there is going to be a “glut” with the few EVs it’s now selling???? I told you how many EVs all of GM sold in the entire year 2024 in a prior article, namely 114,000 all of GM, and only a portion of them were Chevrolets, and only a portion of those were leased. It will sell more in 2025, but still small numbers, so a glut with a small number of units? Tesla still sells more than all other EV makers combined. Franchised and independent dealers will sell about 20 million retail units in 2025, and about as many in 2026, and those used EVs will create a glut among the 20 million sales? You gotta be kidding. There is plenty of demand for used EVs, which is why their prices are still so damn high.
These high residual values for EVs are also the reason the lease payments can be so low.
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I am intrigued to see what will happen to used prices with the price drop coming from Stellantis for 2025 models. A new 2025 is pretty close to used 2024 prices already.