Buying a used car in 2023 will be much more affordable than in 2021.
Following record increases in 2021 during the pandemic, prices of used vehicles are expected to drop closer to normal levels this year following a particularly steep decline in 2022. In fact, the year-end Manheim Used Vehicle Value Index (MUVVI) of 219.3 represented a 14.9% year-over-year drop in 2022, the largest decline in the series' history.
Supply issues severely affected the availability of new cars during the pandemic's peak, pushing up demand for used vehicles. In July 2021, for instance, we reported that used cars and trucks were over 45% more expensive than a year before. Popular used models like the Ford F-150 and Chevrolet Tahoe were among the vehicles with ballooning prices. Fortunately, these three or so volatile years are now seeing some return to normality.
"It's undeniable that 2022 culminates with unprecedented declines in the MUVVI, but it's important to look at the bigger picture," said Cox Automotive Chief Economist, Jonathan Smoke. "These last three years have been extremely volatile for the market, and these declines follow record increases. In December 2021, we were up 47% year over year."
Smoke said that the pre-pandemic levels will probably never return and that all signs point towards equilibrium being established in the used market in the second half of 2023.
According to the Manheim Market Report (MMR), December 2022 also saw declines that were larger than normal. The MMR is a valuation tool that both consignors and dealers use when evaluating millions of trade-ins on a monthly basis, and it saw a 2.2% drop in the Three-Year-Old Index over the last four weeks.
All of the eight primary market segments evaluated saw seasonally adjusted prices that were lower year over year in December 2022, with vans seeing the smallest decline at 12%. This segment was followed by pickups (12.2%), sports cars (12.6%), and compact cars (13.5%).
Looking ahead, used-vehicle values will see depreciation levels that are higher than usual, just as in 2022, particularly in the first half of 2023. According to forecasts, the Manheim Used Vehicle Value Index will be down by 4.3% year over year in December 2023.
While used car prices returning to normal levels will please many shoppers, buying new is a different story - especially if you want an EV. The average transaction amount for an EV sat at around $65,000 late last year, far out of reach for many and way above the average transaction price for all EVs (under $49,000 as of November 2022).