High prices are expected to continue for the foreseeable future and will increase aftermarket volume in two ways
Fort Wayne, Ind.—Contrary to earlier predictions, 2023 used car prices remained high through the third quarter, up over 45% from four years ago, stated Lang Marketing in a new report.
These high used car prices are favorable for the aftermarket since they raise the value at which older cars and light trucks are scrapped — keeping them on the road longer and using more products.
The following are highlights from the analysis.
Higher Use Vehicle 2023 Prices
Used vehicle prices in the U.S. are on a “roller-coaster ride,” with dips followed by price gains. Used car prices are up more than 45% from 2019, driven by chip shortages and supply chain disruptions that have slowed vehicle production and caused buyers to turn to the used car and light truck market. This strong demand has kept used vehicles prices high.
Low-Priced Used Cars and Light Trucks Are Disappearing
Approximately four years ago, about half of used vehicles sold for less than $20,000. Today, the low-priced used market has largely disappeared, with only about one in seven priced that low.
Older and Higher-Mileage Used Vehicles
Not only are today’s used vehicles much more expensive than in 2019, but they are older and have run up higher odometer readings.
Currently, less than half of used cars and light trucks are under four years old. In 2020, used cars and light trucks were much newer, with 57% no more than three years old. The most significant decline has been in the availability of the latest cars and light trucks, those one to two years old.
Low-mileage used vehicles are also challenging to find. Today, 40% more used cars and light trucks have 100,000-150,000 miles on their odometers than four years ago. The same is true of vehicles with 150,000-200,000 thousand miles. They compromise 28% more of today’s used market than in 2019.
Off-Lease No Longer a Strong Source of Used Vehicles
Currently, leasing represents a much smaller share of the new market than four years ago. Only about one in five vehicles are leased today compared to nearly one-third in 2019.
As a result, there has been a sharp reduction in the annual flow of off-lease vehicles, which boosted the supply of used cars and light trucks in years past and moderated their prices.
Used Vehicle Profits for Dealers
With strong consumer demand for used cars and light trucks, dealers find that they can often make greater profits on used vehicles than by selling new models.
Used vehicles also provide dealers with bay volume in two ways: repairing used vehicles to make them sale-ready and enabling dealers to develop long-term maintenance relationships with used-car buyers.
Downward Pressure on Scrappage
The high prices of used cars and light trucks have increased the value threshold at which vehicles are scrapped. This and the greater life expectancy of vehicles boost the value of cars and light trucks in higher age categories.
Scrappage rates are experiencing downward pressure, mitigating the negative impact on vehicle population growth of lower new car and light truck annual sales since 2020, compared to the record-high sales levels from 2015 through 2019.
Double Impact of Higher Used Vehicle Prices
High used vehicle prices (compared to four years ago) are expected to continue for the foreseeable future and will boost aftermarket volume in two ways.
• High used vehicle prices reduce scrappage and keep older vehicles on the road longer. This boosts aftermarket volume since older vehicles require more repair and maintenance per mile than newer models.
• High used vehicle prices encourage consumers to keep vehicles well maintained and extend their life on the road, using an above-average rate of replacement parts per mile.
While used car and light truck prices are expected to ease somewhat next year, there is no returning to the lower-priced pre-COVID market, especially with new vehicle annual production continuing to remain considerably below 2015 to 2019 record-high levels.