Relief for Car Buyers as Used Car Prices Decline for the Second Consecutive Month

Used car prices in the United States have seen a decline in May for the second consecutive month, offering a glimmer of relief to potential buyers in the market for a new vehicle. The Manheim Used Vehicle Value Index for last month dropped to 224.5, marking a 2.7% decrease from April’s reading of 230.8 and a 7.6% decline compared to the same period last year.

This apparent downward trend comes as welcome news for consumers in a market where both new and used car prices have remained high due to increased demand and supply shortages triggered by the COVID-19 pandemic. The Manheim index had been steadily increasing throughout the first three months of 2023.

Chris Frey, senior manager of economic and industry insights for Cox Automotive, acknowledged the continued price erosion in May, noting that it dropped 0.3 points below the index’s January result. However, he cautioned against expecting substantial declines in pricing, emphasizing that two consecutive monthly declines do not necessarily establish a long-term trend. Frey pointed out that the low used retail inventory, which remains below last year’s levels, keeps buyers active in auctions, thereby supporting prices.

As new car prices reach record highs and interest rates rise, Americans are holding onto their vehicles for longer periods. According to S&P Global Mobility, the average age of cars on U.S. roads reached a new record of 12.5 years this year, reflecting drivers’ reluctance to bear the costs associated with vehicle replacements. Since the onset of the COVID-19 pandemic, used vehicle prices have surged by approximately 40%, reaching an average of nearly $29,000. Coupled with an average auto loan rate of 11%, the typical monthly payment for a used car has now risen to $563.

While the recent decline in used car prices offers some respite to potential buyers, the overall market dynamics continue to favor higher prices due to persistent inventory shortages. It remains to be seen whether the downward trend will be sustained in the coming months or if prices will stabilize at current levels. As consumers navigate the challenging landscape of the automotive market, the affordability of vehicles and the duration of ownership remain key considerations in their purchasing decisions.