Demand is Driving Higher Used Car Prices in 2018

By Auto Auction Mall Team Posted: 08/31/2018

A lot has changed in the US used car market over the years. In the old days, used cars had a reputation for being poor quality, uncomfortable, outdated and unreliable vehicles, prone to breaking down. The only thing going for them in many cases were their low prices. This changed as the overall quality of the vehicles increased and as owners started taking better care of them. And so for a while, it became relatively easy to find a used car in good condition at an affordable price in the United States.

The Trends

However, this seems to be changing now. The current year of 2018 has witnessed a significant increase in the prices of used cars in the US market.

The number of cars on the road in the US bought ‘used’ has increased by 7 million to a total of 42.7 million vehicles, a substantial increase. 29% of US households now own at least 1 used car.

The average used car purchase in the first quarter of 2018 was $19,657, 13% higher than the average transaction in the first quarter of 2013 and around 2% higher than the average sale in the first quarter of 2017. This constitutes a significant reversal of the trend the US used car market had experienced for several years. For example, starting in 2012 and all the way up to 2017, there was a marginal decrease in the prices of used cars.

These statistics underpin what was already becoming evident through the available anecdotal evidence, as the prices of some used vehicles went up compared to their value a few years ago, against the general tendency for prices to depreciate.

The statistics also signal a trend that will no doubt worry many US consumers. As prices increase regularly, it may become more difficult to find a used car that fits your budget.
There is one overall factor that helps explain the rise in used car prices: increased demand. More people are choosing to buy used cars, and this has led auto dealers to put up their prices. But what factors explain this increase in demand?

Used Car Price Decline Forecast to Slow to 1.07% in 2019, According to Moody’s Analytics

chart for Used Car Price outlook

Value for Money

The preference for used cars in the United States can be, at least partially, explained by the fact that these vehicles tend to be good value for money. The overall quality of used cars nowadays is much higher than it used to be, in part due to more market-savvy car owners, who have become more careful with the upkeep of their vehicles. This general improvement in the condition of used cars is also driving higher prices, alleviating the effects of depreciation.

On the other hand, the fact that used vehicles are in excellent condition makes them an attractive option for consumers on a budget, as consumers can get a good quality car at a fraction of the price they would need to pay for a new vehicle. The consequence of this is that there is an increase in demand, which, as we have pointed out above, leads to a rise in prices.

Affordability of New Cars

New cars tend to be quite expensive and beyond the budget of many potential buyers. The fact that wages have been more or less stagnant in the United States ever since the financial crash has reduced the pool of consumers able and willing to spend a lot of money on a new vehicle.

The average selling price of a new vehicle in the US is now $34,700, and this is a number that is expected to continue to rise.

As many consumers have experienced hardship and economic anxiety during and after the financial crash, they may also have become more cautious with their spending. They may hesitate to invest a significant amount of money in a new car, especially when they can get by with spending a lot less on good quality used car. That’s why a significant number of consumers do not even consider buying a new car and instead choose to buy used cars. Also, even if you are looking for a luxury or sports car, you will be able to find a cheaper (but still high quality) option in the used car market.

Increased Fuel Prices

Fuel prices have risen massively in recent times, and this has led people to trade in their SUVs and trucks for more fuel-efficient subcompact and compact cars. Smaller vehicles tend to be more fuel efficient than larger vehicles, that is, they tend to have better mileage. Driving these vehicles are a smart way to cope with the increase in fuel prices. As used cars tend to be more affordable than new ones, this has led to a rise in sales in the US used car market, and especially in subcompact and compact used vehicles. This tendency is expected to continue, especially if fuel prices keep increasing.

Used Vehicle Average Selling Price In The US 2007 2017

used vehicle average-selling price in the us 2007 2017

The Future

There is another factor that may add pressure to the used car market in the future, but whose effect is not yet apparent. It is the US government’s imposition of tariffs on imported vehicles and imported raw materials. The former will increase the prices of imported new cars, and the latter will lead to a rise in the manufacturing costs of domestic new vehicles. As new cars become ever more expensive, we can expect consumers to increasingly opt for used vehicles- creating more buoyant prices in the used car market.

These are the main factors that drive the rise in demand for used cars in the United States, and why it is likely that prices will continue to rise.