The decline in new vehicle sales due to the coronavirus pandemic isn’t just a problem for automakers’ bottom lines. The full stop on sales is taking its toll on the used car market as well, causing prices to fall precipitously.
When the country enters tough economic times, used car values typically decline, according to analysts at Edmunds.com. The economic uncertainty that surrounds an event like the current outbreak leads to “knee-jerk” drops in pricing.
The group notes that during the Great Recession, 3-year-old vehicles lost nearly 10% in value, whereas the year before they declined less than 5% in value.
(U.S. new car market showing signs of coming back to life.)
“Recessions aren’t kind to used values,” said Ivan Drury, Edmunds’ senior manager of insights. “With shelter-in-place mandates expected to continue through at least May for most of the country and no clearly defined end to the pandemic in sight, we can anticipate a trickle-down effect on the used market.”
This drop comes as new vehicle sales fall less than expected, but the deals are coming with hefty incentive figures. Edmunds analysts note that now is the time for someone looking for a good deal on a used car to pull the trigger.
The website notes that multiple factors will impact used vehicle values differently, and lower demand, unusually timed off-lease inventory and reduced auction prices are adding up to a decline in used car values. The aforementioned new car incentives from automakers in response to the coronavirus crisis only add to the problem for used car sellers because new car prices are suddenly appealing. This only further cuts prices of off-lease, near-new used vehicles.
(U.S. car sales tumble sharply — but not as bad as originally feared.)
Edmunds predicts that used values stay lower for the foreseeable future, but once the economy begins to rebound, used vehicles are often sought after as a place for consumers to save money when the nation is coming out of a recession.
As a result, the slide in used values is expected to level off, but hopes for a rebound in pricing isn’t something for sellers to hang their hat on as the longer vehicles sit, the more they lose in value. The timing is really unfavorable at this point.
Although used car values aren’t expected to rebound in the short term, 2019 brought a record gap of nearly $15,000 between new and used vehicle prices, Edmunds noted. This gap allows for used values to increase without becoming a threat to new, and reduced wear and tear to vehicles as consumers drive less during this pandemic could also help lift values slightly in the future.
“Personal finances are understandably top of mind for most people right now, so if you’re a car owner and you’re in need of quick cash, selling your vehicle is still a decent option if you’re in a positive equity position or if you have an extra vehicle in the driveway,” said Drury.
(Post-pandemic, global auto sales still likely to remain tanked through 2021.)
“A number of companies provide online trade-in evaluations and instant offers, and many dealerships offer to buy vehicles even without a purchase from their inventory. Consumers can get a good idea of what the trade-in market is for their vehicle by shopping around and determining which blend of value and convenience is right for them.”