The used car market is expected to be in a period of adjustment in 2023.
Analysts are expecting a slight decrease in sales, as challenges with inventory and affordability due to higher interest rates complicate the market.
Chris Frey, Cox Automotive Senior Manager of Economic and Industry Insights, urged patience in the used car market in 2023 during Thursday’s 2023 Industry Insights and Sales Forecast Call.
“We’re not expecting the bottom to fall out of the used market,” Frey said, noting the many challenges.
We’re not expecting the bottom to fall out of the used marketChris Frey, Cox Automotive Senior Manager of Economic and Industry Insights
Cox Automotive is forecasting 18.9 million used retail sales for the year and 35.6 million overall used sales.
Sales in the used car market closed down in 2022, with the rolling 30-day retails sales 9 percent behind 2021. The average listing price also saw a 4 percent or nearly $700 decrease to $27,077, from the end of the previous year.
At the end of the year, the used market saw a double-digit drop in vehicles priced between $25,000 and $30,000 and near 10 percent drop in vehicles between $20,000 and $25,000. Vehicles under $20,000 increased along with vehicles more than $35,000.
“The price bucket under $20,000 is only one with affordable payment for lower incomes. It’s a testament for dealers trying to cater to that market,” said Jonathan Smoke, Cox Automotive Chief Economist.
Smoke noted there’s been a steady growth in wholesale inventory in the past six months.
But as prices retreat for used vehicles from record highs, affordability remains an issue, with high interest rates — 12 to 13 percent. Rates are still expected to climb, as the Federal Reserve tries to bring down inflation. The Fed in the past year has raised rates 425 basis points — the highest annual adjustment on record.
Smoke said the rising rates have dramatically impacted the subprime market. But the higher interest rates and costs have caused demand to slide throughout the industry.
We’re swapping a supply problem for a demand problem. With the higher expenssd, there’s lower demandJonathan Smoke, Cox Automotive Chief Economist
“We’re swapping a supply problem for a demand problem. With the higher expenssd, there’s lower demand,” Smoke said.
Interest rate hikes are expected to slow in the latter half of the year, but will not come down.
New car sales are expected to grow, as the supply of inventory increases. The days of supply are up 65 percent for new vehicles year over year.
The growth in the new car sector could impact sales in the used market. Though the affordability is another challenge, with the average transaction at $49,507 and payments at $785.
“It puts affordability up there front and center,” said Charlie Chesbrough, Cox Automotive Senior Economist.
There is expected to remain a shortage of certified preowned vehicles, as the market continues to play catchup from the past few years, with new vehicle inventory supply disruptions. Vehicles usually available for the CPO market were entering the rental car market at a higher rate throughout 2021 and 2022. CPO sales are expected to be around 2.2 million this year.
“The demand is still there. You generally see lower interest rates and the extended warranties are attractive to customers,” Frey said. “Next year, it will be a supply problem. CPO is attractive, but we don’t have vehicles to certify.”
Smoke acknowledged it will be a challenging year, but some segments will see success. EV sales are expected to top 1 million for the first time. Fleet sales are also forecast to be at 2.2 million.