By Ray Birch
LAWRENCEVILLE, Ga.—What’s the average price of a used car? For 40% of the cars on dealers’ lots it’s above $30,000—a price tag that’s making even these vehicles unaffordable for many consumers, says Black Book, which is predicting that in 2024 the trend of rapidly accelerating values should begin to level.
“In 2019, only 20% of available used units were above $30,000. So, what we have today is really a big jump and is putting even used cars out of the reach for many buyers,” said Alex Yurchenko, chief data science officer at Black Book. “You combine the high cost of used cars with the high interest rates and they are becoming much less affordable today.”
As CUToday.info reported, a recent TruStage Trends Report notes credit union used-auto loan balances grew at a “remarkably low” 0.8% seasonally adjusted annualized growth rate in September, the slowest pace since 2006 due to higher interest rates and high used car prices.
The Rear View Mirror
Looking back at 2023, Yurchenko said used sales hit the gas and then the brakes and then the gas again as values went up and down all year.
“The year started with a strong spring market, which began very early,” he said. “So, at the end of January prices started to go up across most of the vehicle segments and across all of the age buckets. If you go back to the pandemic days, the spring market usually started in March.”
Yurchenko said car dealers were ready in 2023 with a solid supply of used vehicles, and when prices began to go up very early in the year dealers were able to meet the demand.
Prices Begin to Fall & Then…
Alex Yurchenko
“There was a long Spring market, and then prices began to fall in the summer, accelerating at the end of July and into August,” Yurchenko recalled. “We were seeing weekly price changes at about 1% a week, which is very high. But it slowed down in September in anticipation of the of the United Auto Workers strike.”
That strike left the market flat for an extended period, Yurchenko explained.
“There was very little movement,” he said. “It seemed like a lot of dealers and their marketers were in the wait-and-see mode—how long the strike was going to last and how wide of an effect.”
That left the market stable through October.
“And then, in the beginning of November, when the strike was over, we saw prices dropping 1.5% a week,” said Yurchenko. “Dealers were trying to move their inventory as floor plans are expensive.”
Yurchenko noted that throughout last year the stopping and starting of used values showed more clearly on the wholesale side.
“The retail prices are still high, and have been, comparatively, relatively stable,” he said, noting dealers are doing their best to keep stickers high.
Demand is Clear
Despite the high used prices, consumer demand for vehicles is clear in the new car sales data, Yurchenko said. He pointed out new units sold totaled 13.9 million in 2022, and when the final numbers are in, they are expected to approach 15.4 million for 2023.
“And we expect this overall auto buying strength to continue in 2024,” said Yurchenko. “Just like last year, we expect the Spring used market to begin early in ’24. It might not be as strong as last year’s market started out, but it will be similar.”
Black Book predicts 2024 could closely mirror ’23.
“We will have these two halves of the year again, with the strong used market at the beginning of the year and a large price drops in the second-half,” he said.
While used prices remain inflated, depreciation, on an annual basis, has been large in the last two years. Yurchenko explained that typically annual depreciation rates are in the 15%-16% range.
“In 2002 we were at 23%, which is very high,” said Yurchenko, adding that prior to the pandemic 20% annual depreciation was almost never seen. “This year we are forecasting 18%.”
Even with high annual depreciation, as Yurchenko pointed out, used prices remain high due to the huge increases in values brought on by the pandemic and the ensuing supply chain issues.
Prices on the Lift
“With all that high depreciation that we saw in ’22 and ’23, the wholesale prices are still high,” said Yurchenko. “In 2021 wholesale prices went up by 29%. It's still going to take a few years to get back to something close to 2019 (values). Retail prices are going to be elevated for at least two years due to the increases from 2020 and 2021.
“As I said, all of this has really created an affordability issue. We have seen a lot of people just exiting the market because they couldn't afford used cars with the high prices and the high interest rates. But we do expect the retail prices to begin to decline this year. And dealers will need to move some inventory,” concluded Yurchenko, who added that more new units will be manufactured this year, which will also take some of the pressure off used values.