ACV facts & figures
It should come as no surprise that used car prices have skyrocketed over the last two years. If you deal in used cars, you may have enjoyed the shift. But, is this here to stay, or is the boon fading? The truth is, prices are expected to fluctuate for the foreseeable future. Moreover, we may not see prices drop to pre-pandemic levels for a very long time, if at all.
Below we’ll discuss the current state of the used car market, inflation, and what experts predict for the future.
What Can We Expect For Used Car Prices in 2022?
Under normal circumstances, cars depreciate in value, but in 2021, the value of used cars increased dramatically. Retail prices climbed up by 36% and wholesale used car prices jumped by 52%.
In 2022, the trend has taken more of a roller-coaster effect so far. After a long stretch of record-breaking highs, we finally saw these prices drop nearly 5% during the first quarter of this year. Then in April, we saw prices begin to level off. And now, used cars are starting to appreciate once again. That said, prices do appear to be dropping ever so slightly. Reports for Q1 of 2022 are showing that the overall prices of used vehicles sold at wholesale auctions actually declined by 1%. This marked the third month of declines in a row since the beginning of this year.
“We’ve most likely passed the peak of prices,” says Alex Yurchenko, chief data science officer at Black Book. Yurchenko also notes pricing “is a complicated question and there are a lot of nuances to it. We're already seeing declines in wholesale prices. After the next two months, we expect to see both retail and wholesale prices coming down. But we're starting so high that we're not going to get to the pre-COVID level any time in the foreseeable future."
Although this will not directly affect the everyday consumer, it does have a significant impact on used car dealerships. Dealers will look to avoid losing money on their already limited inventory. That said, we can expect that even with dips in the market, overall prices will remain high for quite some time.
What Caused Used Car Prices to Skyrocket in the First Place?
There are two major reasons for the continued, rapid rise in used automobile costs.
The first is the ongoing global microchip shortage. This shortage is a major contributor to the lack of new car production that started in March of 2020. Modern motor vehicles use more chips than those that came before. When mass quarantines began, auto manufacturers expected there to be a significant decline in the demand for new cars. This led to lower sales forecasts and canceled parts purchased for components like microchips. Although the demand for new cars did drop, the decline was short-lived. By the time automakers realized the error it was too late, chip manufacturers took on other work to compensate for the lost orders.
The second reason is the recent conflict between Russia and Ukraine has intensified these shortages. The threat of limited raw materials is already affecting chip production projections. This could potentially lead to an even greater chip scarcity down the line.
Are Car Sales Down In 2022?
Both the economy and the auto market have had a difficult first quarter. The trifecta of challenges affecting the new-vehicle market has not been favorable. According to the vehicle purchasing software CoPilot, sales of used cars less than 10 years old were down 27% last month compared to March 2021.
Record high cases of COVID-19, a war between Russia and Ukraine, and a fragile supply chain are driving up costs. In addition, with inflation on the rise and working to erode the living wage, many consumers are not in a position to purchase a vehicle right now.
Consumer Demand for Used Cars in 2022
Due to the drop in demand, dealers may notice sales declining somewhat in the next few months. Facing a low supply of vehicles at the moment means price cuts are not on the menu. Yet, consumer frustration with the market has signaled renewed purchasing vigilance. According to CNBC, the average time consumers spend looking for a used car has jumped 93% to 171 days from 89 days in March 2021. Historically, beggars can’t be choosers, but at the moment it seems modern consumers are taking that notion for a ride.
Dealing with Dips in the Market
Because the automotive market will always ebb and flow, it’s important to keep a few creative strategies in your back pocket.
During inventory shortages:
- Focus on the Inventory You Have. If your best-sellers are in short supply, focus your attention and advertising budget on those that are available. Check out our post on How to Run a Car Dealership Online Advertising Campaign for more ideas.
- Take Control of Inventory Sourcing. Wholesale online dealer auctions like ACV, allow you to source nationwide and they offer convenient transportation services so you can efficiently zero in on the inventory you need. You can also consider looking for trade-ins, lease buybacks, or even buying used cars from past customers.
- Create a Specific Target Customer Persona. Sometimes our marketing campaigns are too broad. Consider more specific target audiences. Be creative when thinking about these audiences. Can you run a specific campaign for lease-buy backs? Trade-ins? Don’t be afraid to think outside the box!
- Utilize Vehicle Servicing. A shortage of vehicles in your inventory doesn’t mean there is a shortage of maintenance needs. In leaner moments, offering deals on routine maintenance and repair stops is a no-brainer. Consider highlighting services that you offer on social media and your website. Pro-tip: Capitalize on opportunities to build relationships with maintenance customers. A friendly smile and conversation can go a long way when it comes to repeat customers. Personalization helps ensure they think of you when it comes time to purchase their next vehicle.
Want to learn more about maintaining proper inventory? Check out How to Source Smart and Maintain Used Car Inventory Levels.
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