Used cars are not fine wine. They don’t get better with age.
Yet in tandem with high new-car prices, used-car prices are soaring, too — so much so, that some used vehicles are actually appreciating in value over time, according to the latest report on used-vehicle values from KAR Global, which sells millions of vehicles annually through wholesale, dealer-only, used-car auctions.
That’s a nearly unheard-of phenomenon, outside of some seasonal variation, or in the case of specific, scarce or hot-selling models. Used vehicles are a notoriously fast-depreciating asset, especially right after they’re first sold as new. But while it lasts, a combination of high demand and relatively short supply has turned the used-vehicle world upside down.
“Average wholesale used-vehicle prices cracked the $14,000 mark for the first time ever in April and then proceeded to set new highs, above $15,000 in May,” said Tom Kontos, chief economist for KAR Global, in a recent webinar.
“This is the latest sign of the seemingly never-ending rise in wholesale values, resulting from a deluge in demand, and a drought in supply,” he said.
Wholesale prices in April averaged $14,436, according to KAR Global’s latest monthly analysis. That was an increase of 5.9% vs. March 2021, and up 50% relative to April 2020.
The COVID-19 pandemic severely disrupted new- and used-vehicle sales in April 2020, so to put the latest figures in context, the average wholesale price was up 25.7% vs. pre-COVID April 2019.
Kontos said higher used-vehicle values were pretty much across the board. “Interestingly, compact cars and full-size SUVs/crossovers both had large month-over-month increases, exemplifying the breadth of demand across all used-vehicle segments, both small and large,” he said.
Used-vehicle supplies are down, especially for the most desirable, late-model used vehicles, because the usual sources of supply are down: trade-ins on new vehicles, since new-vehicle sales declined in 2020; former rental cars, because that business crashed last year, too; off-lease vehicles, in part because many buyers are purchasing their vehicles at lease end instead of turning them in. Repossessions are also down.
Meanwhile, KAR Global reports that values are up sharply for 3-year-old used cars that would be typical of the sort returning from leases. Three-year-old, mid-size cars averaged $17,826, up $6,653, or 59.5% vs. a year ago, in April. Mid-size SUV/crossovers averaged $27,802, up $8,958 or 47.5% vs. a year ago.
Kontos said retail used-car sales at franchised new-car dealerships and independent used-car dealerships were down 8.1% in April 2021 vs. pre-COVID April 2019. But he concluded the volume decline, “might have been supply-constrained, not demand-constrained.”