After a period of stabilization, used car prices are once again on the rise due to a tightening supply.
According to the U.S. Department of Labor, the average price of used cars increased by 2.2% in January compared to the previous month, while new car prices remained unchanged.
Industry analysts and dealership representatives attribute this price hike to a dwindling supply of used vehicles. As a result, prices are expected to remain elevated for the foreseeable future.
The primary factor behind the shortage is the shift in leasing trends during the pandemic. Automakers significantly reduced lease sales in favor of direct purchases, leading to a sharp decline in the number of lease-return vehicles entering the used car market. Experts predict this supply reduction will persist until at least 2027.
Jay Jang, vice president of Eden Motor Group in Los Angeles Koreatown, said, “During the pandemic, the price gap between leasing and purchasing narrowed, prompting dealerships to steer customers toward buying instead of leasing.”
Since most leases run for two to three years, the current market is seeing fewer returned lease vehicles. He added that while consumers are spending more on vehicle repairs, they still find it more affordable than purchasing a new car and paying higher insurance premiums, leading many to hold onto their existing vehicles longer.
Additionally, an increasing number of leaseholders are choosing to buy out their vehicles instead of returning them, further exacerbating the supply shortage.
Cox Automotive estimated that dealer lease returns will decline by 23% this year, marking a 10-year low. With used car prices remaining high, many consumers find that the buyout price set at the start of their lease is now lower than the current market value, making it financially advantageous to keep their leased vehicles.
Industry data also shows that the average wholesale price for a three-year-old used car has reached approximately $28,000, a 45% increase since 2020. Meanwhile, the average new car price has risen by 25% over the same period, now standing at $48,641.
In contrast, new car supply is stabilizing as auto manufacturing operations recover from the pandemic. As of last month, new car inventory stayed in market for an average of 63 days, while used car inventory declined to 48 days.
Experts suggest that consumers looking to sell their used cars can take advantage of the current market conditions. Pete DeLongchamps, vice president of Texas-based dealership Group 1 Automotive, noted that dealers are likely to offer higher trade-in values to replenish their used car inventories.
BY HOONSIK WOO [woo.hoonsik@koreadaily.com]
