Tracking used car prices is enough to give anyone whiplash.
Since the start of the pandemic and the resulting disruptions to new car supply chains first sent prices soaring, used car prices posted their largest annual increase on record — up 45% in the 12 months ending in June 2021, according to the Consumer Price Index — before swinging to a 12-month drop of 8.8% in the most recent reading for December.
Used cars prices have dropped in December. Pictured is car dealership in National City, California, in June, 2022.
That was the biggest 12-month plunge in prices for used cars since June 2009, when General Motors and Chrysler were both in bankruptcy proceedings and the economy was hemorrhaging a half-million jobs a month.
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“It was a completely wild ride,” said Ivan Drury, director of insights at Edmunds.com Inc., an online resources for inventory and information on cars.
Data from Edmunds shows the average price of a used car purchase in December at $29,533, down nearly $1,600 from the record high of $31,095 reached in April 2022. Today’s average used car price is about the same as the average new car price as recently as 2010.
While the prices of late model used cars are down only 5% off their peak according according to Edmunds, the price of older used cars, those five years or older, have fallen 15% or more from their peaks early in 2022.
Experts say reasons for the decline include higher interest rates that make it more expensive to finance a car purchase, limiting demand. CarMax, the nation’s largest pure used car dealer, has warned that the combination of high prices and high interest rates is creating an affordability problem for many buyers, hurting overall demand.
Increased inventory pushing down prices
But the leading reason for the drop in used car prices is the increased supply of new cars.
It was the lack of new car inventory that drove up prices. Parts shortages, especially for computer chips, had choked off production of new cars in much of 2022, causing the lowest level of full-year US new car sales since 2011.
The low supply of new cars caused an even bigger jump in the average price of used cars, as buyers who would otherwise buy new vehicles turned to the used car market.
“At one point it seemed that everyone who was going to buy new ended up buying used,” said Greg Markus, executive vice president of AutoLenders, parent company of New Jersey’s largest used car dealership chain.
That included rental car companies, which before the pandemic normally bought about 10% or more new cars per year. With limited inventory of cars to sell, automakers essentially stopped making lower-priced fleet sales, and even rental car companies were forced to turn to the used car market.
All that has started to change in recent months. Automakers are reporting more supplies of the chips they need, and are producing and selling more cars, including a return of fleet sales. Overall, sales were up 9% in the fourth quarter compared to a year ago, and nearly 6% higher than in the third quarter, according to Cox Automotive. And with more buyers finding the new cars they want, that means lower demand for used cars.
Experts say part of the decline in used car prices is that the price increases were not sustainable and were partly driven by buyers at used car auctions overpaying for the limited supply of used vehicles.
“There was nowhere for these prices to go but down,” said Markus.
There could be more declines in used car prices in the months ahead, as new car inventories continue to build. One thing that could put a floor under the used car prices: late model used cars will likely be in short supply given the reduced new car production over the last three years.
“The supply issue is still grim,” said Markus. Because of that, “I don’t think we’re getting down to 2019 levels,” he added.
The run-up in used car prices was a major driver in the nation’s overall inflation rate, adding about a full percentage point to the overall increase in consumer prices from April of 2021 through May of 2022. Now it’s a factor helping to bring down the pace of inflation, shaving more than a third of a point off the overall rate in December.
This is obviously good news for those wanting or needing to buy a used car, though it can have a negative effect on car buyers by reducing the value of vehicle they hope to trade in. Edmunds shows the average trade-in value in December down nearly $3,000, or 11%, to $22,605, from the record high hit in June of 2022.
That drop in the value of trade-ins could also be a headwind on car prices by reducing what buyers are able to pay.
Top 5 vehicles to look out for in 2023
2023 Toyota Prius
The 2023 Toyota Prius has been redesigned with better looks and better fuel economy.
When Toyota removed the wraps off the redesigned Prius, most were taken aback by its stylish looks. Gone are the awkward styling and the underpowered hybrid engine. The new powertrain produces almost 200 horsepower — a gain of over 70 horsepower — which results in significantly quicker acceleration. This power gain doesn’t come at the expense of fuel efficiency, either. Toyota says the base Prius will get an impressive 57 mpg in combined city/highway driving.
The interior is more conventional-looking, though we see that as a plus, thanks to a high-mounted touchscreen display and a digital gauge cluster that sits behind the steering wheel instead of perched on the center of the dashboard. Toyota also updated the new Prius’ tech with a bigger center touchscreen and more helpful voice command features.
Estimated starting price: $28,000
2023 Dodge Hornet
The 2023 Dodge Hornet is an all-new compact SUV that shares underpinnings with the Alfa Romeo Tonale.
Dodge’s latest creation isn’t something you’d expect from a brand that boasts large and powerful vehicles like the Charger and Durango. The all-new Dodge Hornet is a small SUV powered by a strong turbocharged 2.0-liter four-cylinder engine or a 288-horsepower plug-in hybrid powertrain. It shares a platform with its corporate cousin, the Alfa Romeo Tonale, and will compete with the Mazda CX-30 and Volkswagen Taos.
As with other Dodge models, the Hornet sports an aggressive front fascia. Inside, the SUV provides a roomy cabin for its size and a modern interior that features a standard 12.3-inch digital gauge cluster and a 10.25-inch center touchscreen. When you consider its strong engines, standard all-wheel-drive system and tech features, its starting price is quite attractive.
Estimated starting price: $30,000
2024 Ford Mustang
The 2024 Ford Mustang is a muscle car that might be the last V8-powered Mustang from the brand.
The 2024 Ford Mustang marks the seventh generation of the long-running and renowned pony car. This Mustang is more of an evolution than a revolution since it uses the same platform and is powered by updated versions of the 5.0-liter V8 and turbocharged 2.3-liter engines. Ford has added power to the V8, giving it a maximum of 500 horsepower in the new Dark Horse model. The four-cylinder is up to 315 horsepower, which is the most standard power in a Mustang to date.
The new Mustang’s exterior has a familiar but more sculptured and modern design. Inside is where the most significant improvements were made. Your eyes will be drawn to the 12.4-inch digital instrument cluster that can be paired with an available 13.2-inch touchscreen. A new neat feature allows the engine to be revved remotely, via the key fob, to show off to your neighbors.
Estimated starting price: $32,000
2023 Honda Pilot
The Honda Pilot is a midsize three-row SUV that has been redesigned for 2023 to be roomier and more versatile.
The three-row Honda Pilot midsize SUV has been hauling families around for 20 years now and benefits from a full redesign for the 2023 model year. Besides a revised exterior and interior, Honda gave its largest SUV more passenger space with additional legroom in both rear rows and an available removable second-row middle seat that allows for up to eight-passenger seating.
A new TrailSport model improves the Pilot’s off-road prowess with a 1-inch suspension lift, underbody skid plates, all-terrain tires and a more capable all-wheel-drive system. Finally, the Pilot’s improved 22.4 cubic feet of cargo space behind the third row is one of the largest in its class.
Starting price: $40,445
2023 Toyota Crown
The 2023 Toyota Crown is an all-new large hybrid sedan that offers an SUV-like view of the road.
The Crown is Toyota’s all-new large sedan that replaces the discontinued Avalon. Hoping to attract SUV buyers and perhaps carve out a niche, the Crown provides a higher driving position than a traditional sedan and comes standard with all-wheel drive. Buyers have a choice of two hybrid engines, a base unit that produces 236 horsepower and a 340-horsepower Hybrid Max engine that powers the top Platinum trim, which can be ordered with a distinctive two-tone paint job.
The comfortable Crown boasts a well-appointed interior that features a large digital gauge cluster and a 12.3-inch center touchscreen. The base hybrid engine delivers an estimated 41 mpg in combined driving, which is impressive for a large all-wheel-drive sedan. The more powerful hybrid engine, however, returns a less exceptional 30 mpg combined but should deliver a more entertaining driving experience.
Starting price: $41,045
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It’s not just inflation—here’s why your car insurance rates are almost certainly going up this year
It’s not just inflation—here’s why your car insurance rates are almost certainly going up this year
If you haven’t received a notice yet that your auto insurance rate is increasing, you can likely expect one is coming.
The General compiled a list of factors that may contribute to higher car insurance rates, including data from the Insurance Information Institute, the Bureau of Labor Statistics, the National Highway Traffic Safety Administration, and other industry sources and news coverage.
Shortages of parts and new vehicles, waves of retiring mechanics, and deadlier roadways are changing the automotive insurance landscape for insurers and you—the driver. That’s on top of the fact that the value of new vehicles has skyrocketed since 2020, charting their largest gains in 2021 as Americans returned to offices, restaurants, and social events again, pushing up demand for both new and used vehicles.
New vehicles have sold for above sticker price for nearly a year and a half now, according to Kelley Blue Book. New cars cost 18% more in October 2022 than they did in October 2020, according to the BLS. Meanwhile, used car prices increased by 29% over the same time period.
Generally speaking, any form of insurance is premised on complicated financial schemes that balance cost and risk while also turning a profit and sheltering consumers’ exposure to financial ruin. Most states have laws that require drivers to carry a minimum level of automotive insurance to help spread out risk.
When an insurer has to pay out more in claims than it takes in through premiums, the company could become insolvent and collapse. Therefore, insurance companies are constantly evaluating and adjusting the amount of money they need to collect in premiums—either semiannual or annual charges, often paid in monthly installments—to avoid taking losses.
Of course, insurers also evaluate how much to charge a client based on their assessment of how likely it is the client will trigger reimbursement for damages. And those factors can extend well beyond just the client’s driving record to include their education level and occupation.
“Underwriting losses are expected to continue as more rate increases are needed to offset catastrophe and economic and social inflation loss pressures,” Jason B. Kurtz, a principal at financial consulting firm Milliman, said at a virtual industry conference in November.
The Insurance Information Institute’s chief insurance officer is projecting rates will have risen 8.8% over the course of 2022 and are on pace to rise another 8.9% in 2023. The institute points to difficult economic conditions as well as climate disasters as reasons companies are anticipating losses in the coming year. Hurricane Ida’s impact has already bankrupted 11 insurance agencies since it made landfall in August 2021, and the aftermath of 2022’s Hurricane Ian could do further damage.
Rising auto shop wages
The median pay for auto technicians and repairers surpassed the $22 per hour national median for all occupations in 2021. They now earn a median pay rate of $22.55 per hour, a 6.4% increase from 2020, according to the Bureau of Labor Statistics.
The workers who put your car back together after a wreck command more wages as the veteran trade workers who retire from the workforce. Dealerships and lobbying groups have struck partnerships with schools and nonprofits in recent years to train the next generation of auto technicians. Their jobs have become increasingly technologically advanced as cars are loaded with more computer parts.
The costly dilemma for drivers is only anticipated to continue for the foreseeable future at least. The Bureau of Labor Statistics anticipates the number of auto technicians employed in the U.S. will remain roughly unchanged through the end of the decade.
Supply chain challenges
Due to production challenges introduced by COVID-19 and varying government mitigation plans worldwide, new vehicles are also in short supply. With high prices on the ones that are available, drivers are keeping the cars they have longer. The median car on American roads is older than ever and may need more frequent maintenance.
Car parts are in high demand this year, but parts-makers are still working to catch up to that demand, according to a report from collision repair tech firm CCC. Combined with difficulty finding workers, vehicles are taking longer to repair and causing consumers to use rental cars for longer—another additional expense for insurers. Repairs took 2.1 days longer in 2021 compared to 2019 on average, per CCC.
Adding to costs, rental car agencies spent the last several years selling their inventory to cover expenses in downtimes. They, too, are struggling to purchase new vehicles, sending prices up for the cars they do have available.
Traffic accident increases
Traffic accidents and roadway fatalities are seeing an unfortunate upward trend. Between 2020 and 2021, fatalities resulting from automotive collisions spiked by 10%. A greater share of those deaths was seen on urban as opposed to rural roads in 2021, according to the National Highway Traffic Safety Administration.
And the spike in deaths and accidents comes as medical care costs are also rising. The average cost of medical care increased 6.5% from October 2020 to October 2022, the most recent month for which data is available from the Bureau of Labor Statistics.
Rising claims and costs
These factors combine to generate deeper losses for insurance companies in 2021 than any other year in the preceding decade. Not only are costs per claim going up, but comprehensive damage claims are being filed more frequently, according to the Insurance Information Institute. That coverage insures a vehicle against forms of damage not related to a collision, like storms.
More mobility
Following the easing of lockdowns and other COVID-19-related restrictions, Americans started traveling a whole lot more. To the dismay of airlines, interstate business travelers have not returned to the skies very quickly. By contrast, travel by automobile—whether road trips to visit family or for leisure, and even commuting to work—picked up quickly. That trend is especially apparent in travel for retail and recreational reasons, which was down 16% from pre-pandemic levels in October 2020 but was just 9% down from those levels in October 2022, according to Google mobility data.
This story originally appeared on The General and was produced and distributed in partnership with Stacker Studio.
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