Used car demand suddenly spiked in January, increasing wholesale values at auction as well used car prices on lots. Wholesale values saw an increase of 2.5 percent from December to January, according to data from Cox Automotive, which is the highest jump from one month to another since the end of 2021.
The sudden jump in demand is likely a result of used car prices cooling, which led to buyers taking advantage of lower prices, which is now sending prices up again, as CNBC reports.
The data from Cox’s Manheim Used Vehicle Value Index shows that prices are still down overall, but they’re inching their way back up. The used car market burst last year after a long boom period, as prices plummeted by 15 percent. The market is reportedly now stabilizing to pre-pandemic levels, characterized by steady inventories and prices below the pandemic’s record highs.
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The latest figures from December put the average price of used cars at $27,143 and average monthly payment at $570. The figures from January will show an uptick given the “surprise” upward trend in prices and demand, per Bloomberg.
But really, it’s not so much a surprise as a logical consequence of the pendulum swinging back the other way: as used car prices go up, sales go down; then, as used car prices go down, sales go up.
After the mild bump in values from January, prices are still around 12.8 percent lower than previous record-high levels, which Bloomberg refers to as “inflated.” In that sense, used car prices are still down, but now that wholesale values are up, retail prices are also on the rise, per Bloomberg:
Stephen Scherr, chief executive officer of Hertz Global Holdings Inc., said the company saw a big jump in prices over the past five weeks both at auction and in used cars sold at retail.
Hertz sells one-quarter of its fleet vehicles through its own dedicated retail channel and online retailer Carvana Co., Scherr said. Cars sold via those channels captured a 5% to 7% premium over auction prices, he said, adding the company is selling all of its cars for more than book value.
“The snap back over the last four weeks has been more pronounced,” Scherr said in an interview. “There is clear stability and more of an uptick.”
Many people are now returning to the used car market, which is clear from the sales figures at retail. Month over month sales were up by 16 percent in January compared to December. And sales were also up year over year by five percent when compared to sales from January 2022.
Market analysts expect 2023 to end with lower prices overall, but the used car bubble seems to be showing some resilience. Where that will put Carvana and other retailers is still unclear, but at least the company has something to look forward to these next few weeks, what with all of its sales fetching “more than book value,” as Bloomberg notes.