Using data and analysis from consulting firm KPMG, it’s predicted that average used car prices will fall about 20-30% in a return to a normal relationship to new car prices. Of course, this is contingent on vehicle supply, of which KPMG believes will reach equilibrium around October 2022 and into 2023.
Even if it takes until late 2022 for new car supply to catch up to demand, KPMG believes that used car prices will start their downward trend before then. This could happen because KPMG predicts that the market will anticipate greater new car supply and reduce used car prices to go along with it.
The dip that analysts believe is coming is going to be a sharp one. Used car prices are up about 42% on average over January 2020 prices right now. That’s one giant swing up, and if it comes back down, it’s going to be hugely impactful. Those who paid for used cars at Covid supply prices will have massively overpaid for their cars’ new value, and will see their investments tank quickly. That’s going to hurt.
Other analysts who are far less alarmist are cited in Automotive News’ report. For example, Cox Automotive is of the opinion that used car prices will decline at a far more manageable rate, as it doesn’t believe we’ll reach pre-pandemic supply until 2025. That said, Cox is still of the mind that peak used car prices will come between January and April 2022, then slowly taper off after that.
Even KPMG offers some alternative scenarios to its main prediction. One suggests that inflation continues, causing prices to stay high indefinitely. And the other brings up the possibility that the Federal Reserve’s response to inflation could cause a snap-back effect of sorts and totally stifle consumer demand.