The used cars market has changed a lot in the last few years, and it is predicted that the trend will continue in 2023. Some of the factors that will contribute to this are the supply chain constraints, the rising interest rates, the cost of living crisis, and the trade-in values. If you are in the business of selling used vehicles, you should keep in mind these trends.
Cost-of-living crisis
The global automotive industry is coping with a cost-of-living crisis that has been affecting used car prices. It is difficult to pinpoint a specific trigger for this but high inflation is at least a factor.
Last year, the price of used cars rose by more than five percent. However, analysts have predicted a slowdown in prices over the next few years.
A recent study by Autovista Group found that the market is reaching a turning point. This trend is likely to continue into the future, according to the firm.
An average three-year-old vehicle’s %RV fell a whopping 2.6 percent month-on- month in December. Meanwhile, the Manheim Used Vehicle Value Index hit 236.3 in January 2022.
While prices for vehicles continue to fall, they are still well below the historical average. Analysts have warned that used vehicle prices could tumble 20%-30% in the coming two years.
One way to gauge how used car prices will evolve is to look at the trend in new car sales. While there has been a significant drop in sales in the first half of 2022, there has also been a rise in registrations.
Supply-chain constraints
The global automotive supply chain is undergoing significant disruption. These challenges include labor shortages, shifting demand, and structural issues. Some companies are facing significant financial losses due to these constraints.
Automotive OEMs can rely on third-party logistics providers to help them address these challenges.
One of the biggest challenges in the automotive industry is material management. This is a huge area of concern because of the need for good communication throughout the supply chain. Automakers need to find a solution to reduce inventory levels without sacrificing pricing power.
One potential solution is to prioritize shorter-term contracts with suppliers. This allows automakers to adjust prices more frequently. In addition, it eliminates the need for larger inventories.
Another possible approach is to rethink the way automakers price vehicles. They may have been leaving billions of dollars on the table by using a poor pricing strategy.
A recent study by Edmunds found that the average transaction price for a new car in November was a record $45,872. That’s 15% higher than last year.
‘K-shaped recovery’
A K-shaped recovery is a recovery that is characterized by a wide gap between the richest and the poorest. This can be due to a racial wealth gap or structural change in an economy.
It can also be a result of the ‘creative destruction’ of an economy. This is where new industries replace old ones.
The economy in China continued to improve last year, recording 18.3 percent GDP growth in the first quarter. Some sectors returned to pre-pandemic levels of growth, while others lagged behind.
The Investopedia Economy article describes how different sectors recover at different speeds. For example, the hospitality industry has been hammered by the pandemic, while parts of the health-care sector have received a boost.
In a country like India, where the income of the poorest 20% of households declined by 53 percent, this is not a unique phenomenon. Nevertheless, it is an indication of how diverse the fortunes of various segments of society have been during the recession.
Preparing for rising interest rates and trade-in values
The used car market has suffered a lot of turmoil lately, and if you are planning on buying a used vehicle, you need to be ready for rising interest rates and trade-in values. You will not only be looking for a bargain, but you also need to make sure you have a good credit score.
Used vehicle prices have gone through the roof in recent years, due to a shortage of new vehicles. But a lack of new cars means fewer second-hand cars to trade, and therefore prices are expected to fall.
According to J.P. Morgan Research, used car prices are predicted to drop 10% to 20% by the end of 2023. However, the decline may not be as dramatic as some analysts have predicted. This is due to an industry-wide chip shortage, which is forcing new cars to cost more.
Meanwhile, the economy is slowing down. This has increased delinquencies, which will affect the securities that back vehicle loan debt. In addition, rising interest rates could hamper consumers’ ability to afford new cars, and they may also impact new- car sales.
