Used cars may finally get cheaper this year — but don’t expect pre-pandemic prices

Hyundai SUVs at a car dealership.

Used cars will finally start getting cheaper in 2022, but prices won’t crash to 2019 levels. 
That’s according to Jonathan Smoke, chief economist at the auto-industry giant Cox Automotive. 
New cars, Smoke says, won’t start getting cheaper until the end of 2023 or beginning of 2024. 

If you’ve been waiting for bloated used-car prices to crash before buying a set of wheels, there’s good news and bad news. 

First, the bad news: Secondhand-car values aren’t going to suddenly plummet, and they won’t ever fall back to 2019 levels.

That’s according to projections by Jonathan Smoke, the chief economist at Cox Automotive, which owns Kelley Blue Book, the car marketplace Autotrader, and Manheim Auctions, the country’s biggest wholesaler of used vehicles. 

Used vehicles — even aging, high-mileage ones — have become incredibly expensive in the last two years, mainly because a still-ongoing shortage of computer chips has slashed the number of new cars automakers are able to build and ship to dealers.

There is light at the end of the tunnel though: As supply chains come untangled and production recovers, supply and demand for used vehicles will begin to balance out. Smoke says used prices will finally start to decline in the second half of 2022. 

But there won’t be the sort of drastic correction some people are anticipating.

Instead, Smoke says, used-vehicle values will basically start acting like normal again — depreciating over time as cars age and rack up miles. In other words, if you buy a 2010 Honda in July, it’ll be worth less in December. That isn’t how the market has acted in these bizarre last two years. 

“We will see a return to normalcy in terms of where prices go going forward, but we’re not forecasting that prices are going to decline and go back to where they were prior to the pandemic,” Smoke told Insider in an interview. 

By the end of 2022, prices of wholesale used vehicles will decline by around 3% as compared to the end of 2021, Cox estimates. Briefly, during the second half of the year, cars will depreciate slightly quicker.

Prices won’t drop like a rock for a few reasons, according to Smoke. We aren’t entering a period of extreme oversupply or diminished demand. And vehicles aren’t an asset that people offload as values dip — like stocks, for example. People buy them because they need to, not as a speculative investment, and they don’t get rid of them willy nilly. 

Plus, Smoke says, the values of new and used cars aren’t all that out of whack from each other (both are elevated) so there isn’t huge pressure for them to snap back to prior levels.

Other industry watchers see things differently. The consulting firm KPMG released a report in December suggesting that “a 20 to 30 percent plunge in used-vehicle prices is in the cards” as new cars become more widely available. 

A gradual decline in used-vehicle prices may disappoint anyone looking for a 2019-style bargain. The average list price for a secondhand car is now nearing $30,000. But it also potentially means people who shelled out for a car in 2020 or 2021 won’t be saddled with a vehicle they paid thousands too much for. 

Used-car costs may be heading toward some sort of normalcy, but the car market overall will remain off-kilter for years. 

Although carmakers are expected to churn out more vehicles in 2022 than 2021, the supply of new cars available at US dealers will stay tight for quite a while. That means consumers shouldn’t expect big discounts or deals anytime soon. 

The average transaction price for a new car surpassed $47,000 in December. New cars, Smoke projects, will likely keep getting more expensive through 2023. 

Read the original article on Business Insider

Transportation, News, Economy, Transportation, Auto Industry, car buying, Used cars, Inflation, Economy

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