There’s no denying it now. The used car market, once a seller’s paradise with sky-high prices, now seems to be changing lanes. After a period of soaring prices, recent data now suggests a shift. Prices have not only peaked but also seem to be on a steady decline, with several data points proving that this scenario is more of a trend than a blip.
According to automotive data firm iSeeCars, used car prices have been on a downward trajectory for several months now, with electric vehicles being especially hard hit. In some cases, EV prices have plummeted by as much as 30% year-over-year.
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Analysts point to certain key factors at the heart of the current state of prices in the used car segment. The pandemic-driven chip shortages and supply chain disruptions are easing, leading to an increase in new car production.
Other elements that have combined to push used car prices downwards are aggressive pricing for new vehicles (especially among EV manufacturers like Tesla) and rising interest rates as governments worldwide attempt to rein in rising inflation.
Is the Used-Car Price Correction Here?
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Like most types of goods, used car prices are heavily influenced by the forces of demand and supply. During the COVID-19 era, a crippling chip shortage swept through the automobile sector. This shortage, coupled with global supply chain constraints, directly impacted the number of new cars that rolled off the assembly line.
As a result, consumers flocked to the used car market to fulfil their transportation needs. The sudden surge in demand and limited vehicle supply sent prices to record highs. At its peak, the average transaction for a used vehicle went up by about 30% year-over-year, according to popular automotive research site Edmunds.
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The momentum slowed somewhat as the supply chain constraints eased and chips became more readily available. However, prices remained at historical highs for most of 2022.
The story is a little different now, though. According to Cox Automotive’s Manheim Used Vehicle Value Index, the average wholesale price of used cars dropped to $17,934 in June. That’s a drop of 8.9% compared to the same time last year, and that’s not the complete picture. The latest drop continues a year-over-year decline that’s spanned twenty-two straight months now, with no end in sight.
EVs Feeling the Pinch the Most.
Virtually every segment of the used car market has been feeling the effects of the price cooldown. However, the situation is even more pronounced with electric vehicles, with some used models shedding nearly half its value in about a year. An example is the Tesla Model 3 (two-wheel-drive), whose average prices have plummeted by as much as 40% in a year.
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‘There’s no denying the crash in used electric vehicle values over the past year,’ said Karl Brauer, an executive analyst for iSeeCars. ‘We’ve watched EVs’ prices fall between 30 and 40 percent since June of last year, while the average gas car’s price has dropped by just 3 to 7 percent in that same timeframe.’
The idea of EVs was touted on a wave of enthusiasm and an overly optimistic backdrop that now seems to have faded. In recent times, consumer skepticism has grown around EV-related issues, such as the availability of a national charging network and the desirability of an electric powertrain, especially compared to traditional ICE vehicles. This market behaviour results in consumers becoming increasingly unwilling to pay a premium for used EVs and opt for combustion vehicles instead.
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Another reason for the crash in used EV values is the oversupply of new vehicles. Automakers overestimated demand and have now produced more vehicles than buyers need. For this reason, carmakers like Mercedes Benz and Ford have had to scale back their EV plans.
iSeeCars ranked used cars by the biggest price drops over the past year, collecting data on over 2 million vehicles. As shown by the table below, electric cars take up the first seven slots and make up eight of the top 10 models with the most significant pricing drops.
Table – Top 10 Cars With the Biggest Year-over-Year Price Drops
| Rank | Model | Average Used Price | Year-over-Year $ Price Difference | Year-over-Year % Price Difference |
| 1 | Jaguar I-PACE | $32,651 | -$14,053 | -30.1% |
| 2 | Chevrolet Bolt EV | $18,081 | -$7,041 | -28.0% |
| 3 | Hyundai Kona Electric | $21,602 | -$7,780 | -26.5% |
| 4 | Kia Niro EV | $22,893 | -$7,561 | -24.8% |
| 5 | Nissan LEAF | $17,593 | -$5,546 | -24.0% |
| 6 | Tesla Model 3 | $28,439 | -$8,932 | -23.9% |
| 7 | Tesla Model X | $59,296 | -$13,690 | -18.8% |
| 8 | Jaguar E-PACE | $27,811 | -$5,658 | -16.9% |
| 9 | Tesla Model S | $55,340 | -$10,399 | -15.8% |
| 10 | Maserati Levante | $49,096 | -$8,991 | -15.5% |
Source: May 2024 iSeeCars Study
What’s driving Prices Downwards?
As mentioned earlier, It’s not just used EVs that have seen a steady price reduction. Used ICE vehicles have also seen some form of steady price drop over time.
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With new car production ramping up to pre-pandemic levels, customers are also returning to the new car market. This shift in demand away from the used car segment has put downward pressure on prices.
Also, the exceptional price increases experienced in the past few years can be viewed as a ‘bubble.’ They were triggered mainly by extraordinary influences (the COVID-19 pandemic, chip shortage, and supply chain challenges). As with any bubble, a correction was inevitable, and the current downward trend indicates a return to a more sustainable pricing structure.
Apart from the traditional forces of demand and supply, rising interest rates have also played a direct role in cooling the hot used car market. The Federal Reserve’s interest rate hikes have made auto loans more expensive, making them less attractive to budget-conscious buyers.
Time to buy a Used Car?
While the reasons behind the decline in used car prices are complex, with factors like economic shifts and manufacturer pricing strategies at play, one thing is clear: the used car market is no longer in a bubble.
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It’s not all doom and gloom, though. In fact, falling prices still present prospective buyers with opportunities to score a bargain deal on a used car, especially if EV options are being considered. With careful research and consideration, a used vehicle could be an attractive proposition.
There’s no telling how long the downward trend will continue, but it will be interesting to see how the various underlying factors shape the used car segment in the near future.
