Why Used Car Prices Are Rising After Months of Declines

(Image credit: Getty Images)

Car buyers got a rude surprise on used car prices yesterday. April's Consumer Price Index report revealed that used vehicles are getting more expensive again after an uninterrupted decline since July 2022. Here's what happened, and what buyers can expect next.

The used car price rollercoaster

In June 2021, used cars had risen so far that they accounted for a full third of the year-on-year inflation rate, according to Quartz. At that point, pandemic-related supply disruptions and a misreading of customer demand meant manufacturers struggled to procure parts and chips for new cars. This trickled down into a lack of supply and soaring prices in the used car market.

As the pandemic eased and supply chains unkinked, the used car market started to cool off. Before this latest CPI report, Kelley Blue Book reported that used cars had dropped for months thanks to new cars steadily entering the market and feeding the supply of used cars, as well as consumers who refused to stop spending in the face of continued inflation.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

The sudden spike - and what comes next

The nine month streak of good news snapped with the April CPI report, which showed used car prices rose by 4.4% month-over-month. So, what happened?

CNN reported in February that auto wholesaler Mannheim registered a 4% jump in its average wholesale used car price in the middle of February, which was likely to trickle down to individual car buyers. CPI data usually takes some time to register these shifts, which eventually showed up in the April data.

Experts had also predicted that dealers would hoard used cars for the start of April, when millions of Americans were receiving their tax refunds. They also predicted prices would start to fall again shortly thereafter as refunds dried up in the weeks following Tax Day.

Sure enough, Kelly Blue Book reported in late April on a real-time drop in wholesale used car prices, predicting that "retail prices are likely to fall once the pricier cars have all sold. That could take a month or more."

This downshift in prices should show which means used car inflation will retreat again later in future CPI reports. Buyers in the market now should monitor prices to see this wholesale price cuts trickle into the consumer market as we inch toward summer.

If you're looking for auto insurance for your newly-purchased ride, shop around using our new comparison tool — in partnership with Bankrate:

How to save on used cars

No matter the market forces or average price, car buyers can boost their chances of finding a good used car deal with these tips:

Consider smaller cars with higher fuel economy and less-premium electric vehicles like the Chevrolet Bolt and Nissan Leaf.
Avoid leases that sharply restrict mileage (often to as little as 10,000 miles per year) and drive up the price of late-model used cars.
Review the reliability and popularity of a potential purchase via Consumer Reports, Autotrader and Kelley Blue Book.
Look for 2/3-year-old used vehicles that have already seen most of their value depreciation.
Consider newer vehicles with higher mileage, such as used rental cars that are well-maintained and usually carry lower prices.
Check out all-digital used-car sites including Shift and Vroom, which perform full vehicle inspections, offer seven-day returns, and feature lower prices thanks to a lack of dealerships.

Ben Demers manages digital content and engagement at Kiplinger, informing readers through a range of personal finance articles, e-newsletters, social media, syndicated content, and videos. He is passionate about helping people lead their best lives through sound financial behavior, particularly saving money at home and avoiding scams and identity theft. Ben graduated with an M.P.S. from Georgetown University and a B.A. from Vassar College. He joined Kiplinger in May 2017.