JD Power: Could be long wait for used-car values to fall
If you’re waiting for used-car prices to come down any time soon, don’t hold your breath.
Given market dynamics — like reduced vehicle availability, competition in the auction lanes and consumers still buying cars but keeping their current rides — J.D. Power Valuation Services director of market intelligence David Paris says that, “it is difficult to avoid the conclusion that used pricing will remain at historically elevated levels through the majority of 2022.”
In a Valuation Services Intelligence Report released Wednesday, J.D. Power said wholesale vehicle prices were up 21% year-over-year last month and retail used-car prices were up 14%.
Complicating matters is the fact that year-to-date wholesale volumes had fallen 33%. Dealers and rental companies are going toe-to-toe trying to secure used-car inventory, as consumers are steadfast in buying cars and holding on to their current rides, the company said.
“It all adds up to reduced availability. We are witnessing a massive — even historic — decline in inventory,” Paris said.
“There are 40-50% fewer vehicles being sold through wholesale sales channels today compared to 2019,” he said. “This trend continues to put upward pressure on prices. So far in May 2022, wholesale prices are up by approximately 1%. If this trend stays the course, it will mark the third consecutive month of wholesale price increases.”
Regarding those wholesale volume numbers, a Wholesale Market Update from J.D. Power Valuation Services released in May indicated there were 1.37 million wholesale auction sales of vehicles up to 8 years old through four months of the year.
That’s down from 2.04 million the same period of 2021, representing a 33% drop.
Auction sales volume among mass-market brands dropped from 1.73 million in to 1.16 million in the same time frame (a 33% decline), while premium sales have fallen from 302,000 to 205,000 (a 32% downturn). In April, wholesale auction sales volume was down 40% year-over-year, with mass-market sales down 41% and premium sales off 32%.
Meanwhile, used retail prices approached $31,300 in April, setting a record.
“While the first half of May has seen used retail prices drop by about $200, we haven't seen a material and sustained decline in used retail prices,” Paris said. “They are still hovering at historically high levels. The pricing data is matched by the critical days-to-turn metric, which is 15 days fewer than the pre-pandemic levels. Days to turn was 39 days in May 2022, compared with 50-53 days prior to COVID-19.”
And while new-vehicle production improvements will eventually help the used-vehicle market, don’t expect any relief within the next year to a year-and-a-half, J.D. Power said.
There were approximately 1.3 million new vehicles that entered the new-car market in April, following 1.4 million new units in March – making it two straight months of production increases.
And while Paris indicated that these numbers — which beat third-quarter and fourth-quarter averages — are a “great sign” for retail supply, the two-plus years of supply-chain disruptions won’t be offset overnight.
For instance, there were 847,000 units of retail inventory at the end of April, compared to the 854,000 units the industry has averaged since July.
“As a result, we do not expect to see a dramatic reduction in automotive pricing in 2022,” Paris said.
“They will remain elevated until the industry overcomes production challenges and disruptions in the wholesale marketplace,” he said. “Until then, consumer competition for limited inventory will remain fierce, perhaps driving prices higher than they are today.”