Why Used Car Prices Won't Crash in 2022

Used car prices increased a lot during 2021. A one year old used car is on average 1.3% more expensive than a new car. Nevertheless, a full blown market crash in unlikely.

On average, a one year old used car is 1.3% more expensive than a new car; the world is going crazy. Unsurprisingly, an increasing number of reports state that the market will crash. Contrary to this, Cox Automotive published an article in which they state that a market crash is unlikely. They’re expecting a used car price drop of 3% in 2022. Moreover, they directly criticize an article that forecasts a 20 to 30% drop.

We will explore both forecasts and then dive into some of the criticisms. The latter relies on two arguments. First, according to Cox automotive, the relationship between used and new car prices is not as extreme as claimed in the article. Second, they highlight that from a historical perspective, a drop of 30% is unprecedented. The first point difficult to evaluate as an outlier but the second point has some merit.

All of this highlights that there’s a lot of uncertainty in the market. Therefore, if you’re worried about car values and price decreases, it might be worthwhile to drive around in a car that you can easily afford. To me it seems rather risky to stretch yourself and buy a one year old used car that is more expensive than its ne equivalent.

00:00 Two different views on the market
01:37 2022 Forecasts
04:04 Why prices won’t crash
10:19 Why this matters and conclusion

[fourwheeltrader]

*What will happen to used car prices in 2022? *

[rn]

Although I agree with many points made in the video, the elephant in the room seems to be the fact that historically we've never seen such drastic price increases either, so dramatic price decreases can still happen. Car manufacturers like Mercedes & BMW have already stated that they will keep their new higher prices, however dealerships may go back to their deals, and offers once they start to face competition.

[barbarusbloodshed]

.... aaaand I expect a drop of 5-10% in 2022 and another 10-15% in 2023.
So, basically, I expect to see a crash that starts in the second half of this year and then really gets going during the next year.
The data I base it on? Common sense. There's economical trouble already, and there's more ahead. People will buy way less cars and dealers will become desperate.

[craig]

I feel like Cox is self interested in this. It might not be 30% but it will be closer to KPMG's estimates than Cox's.

[RyanHarris]

Smart money is out of the used car market at the moment. I have a reminder on my calendar for late 2023 to start checking prices again.

[Vanxiety]

Great breakdown, best I've seen. I agree with cox. I think there's a gradual decline over next couple years that ends up being around 10-15%. Definitely no crash, not possible, unless there's some magic ginormous delivery to the whole country at once.

[YumboYack]

I’m addicted to your videos. The geeky data plus and your understandable breakdowns are awesome.

[PatsGarageOnline]

Cox has more control of the used market than the average person understands. They're predicting exactly what they are projecting. I just bought a GT4 at a great price from a friend at the KPMG "peak" and I'm not worried about that. Thanks Cox!

[madfemurfast]

I do not think that any dealership in the world can sell at a 30% loss and survive. I am sure that some adjustments will occur but I'm too sceptical of 20 to 30%. The best way to avoid anxiety is not to buy a car as an investment. If you buy, let's say, a Corolla you do not care what the market does as you will keep the car a decade (or 200, 000 kilometres) and you know that when it is time to sell, it is worth 500 USD. And for sure this does not apply (as you showed before) to collectable cars (those 911 are safe). So this is, I think, just a dealership problem. Thanks for another great video!

[csuconcordia]

I have an i8 coming off lease in a month. The buyback is 86k on this 2019 and it is probably worth 125k on the market. I have been checking car prices and discussing with the bmw dealer and a close friend who is a wholesaler. A few interesting notes. 1. For M cars, BMW is only taking orders with deposits for cars. No more M cars sitting on lots. That means minimum 4 mo wait for an M car . Porsches new seem to be severely backorderd, I think what might happen is premium cars might stay inflated as manufacturers prefer the scarcity model for them and the regular cars will return to business as usual. New car prices apparently claimed that the prices haven’t increased significantly but the reality is that the discount on most cars is gone and before you would get 10% off a car (My last 2 cars I bought were 30% discounted) now you pay a few points above msrp. Not to mention some manufacturers have increased their car prices, Kia and Cadillac for example. Escalade has 6month minimum wait. Not sure the whole market will move homogeneously. Look at the Rolex marked compared to other watches.

[JamesD-HB]

No one expects gas to "crash" back to $1.50 per gallon. Inflation has permanently hit car prices too.

Waiting for a crash due to these factors out of our control is like hoping your landlord will reduce your rent.

1) DEMAND. People can't hold out to get another car if theirs is on its last legs, badly damaged, or their lease is up.
2) SUPPLY. Material shortages and labor rates cause costs to keep rising. Besides chips, shortages in magnesium to make aluminum alloy for engine blocks, rubber, even spray in bedliner for trucks. Lithium is up 500% since last year.
3) PRODUCTION. Auto CEOs have already announced to their shareholders that they will limit inventory on purpose to keep prices high. They don't want to give cash back or other offers anymore.

As MSRPs go up, so do used cars. Sorry we are not going back to normal. Just like the price of gas, steaks, or rent, this is the new normal for cars.

[HightLink]

Considering the gas prices (in europe $6.5 a gallon of gass and $7.3 a gallon of diesel) + the insurance price that is now double in my contry + the inflation, I think the prices will drop on cars with big engines and high maintenance cost and continue to stay up for small engines, cheap to run cars.

[Wisesap]

I’m in the camp with you and Cox. Not because that is what I want, but rather what seems most likely. I believe e supply of new cars has to increase significantly to get more buyers in cars and trade in used cars; thus increasing used supply.

The one dynamic I think may change is new car inventory levels. Will dealers go back to hundreds of cars on the lot with discounts, or have they gotten comfortable with higher prices and less discounting? I know they can get away with it now. BUT, will the consumer adjust to the higher price/lower discount? A lot at play and it will be interesting to see how it all pans out over the next few years.

[bobbymackey]

Two aspects that were not taken into account: Gas prices and repossessions. Gas prices kick started the recession and generated 15% inflation across the board. Auto loan delinquencies have skyrocketed, repo companies are busy 24/7, mainly because of all the cars that were bought in the last two years thanks to stimulus checks. Dealer auctions are trying hard not to flood the used car market (MANHEIM) by limiting the number of vehicles sold each week.

[KhanJoltrane]

Well considering Cox Automotive is owned by the same people that own kelly blue book and manheim (as well as others), they have a great interest in keeping car prices high. We have seen a 16.7% decrease in used car prices year over year as of 11/22.

[stevenshorten]

Housing will stagnate. Car prices will crash. People are starting to feel that $500 monthly payment and $100 insurance payment. They'll get rid of that car to pay for their rent. I'd expect the sports cars to be the heaviest to hit the market this fall since they're not great in the snow.

[ViralRivers]

Is it worth just buying a 2022 carrera? I see all used 3 year old models are above the $100k mark still

[petithor]

if I can offer tricks that other youtubers use:
you could open with a catchy article from a car magazine and broaden to the point you're trying to make.
Similarly an analysis/explaination of research papers in the field could bring you new viewers I think.
Keep it up!

[EngineEconomics]

So what you’re telling me is I can keep my C7 Z06 for longer than I planned?! Thank you!

Also I love your videos especially the corvette ones. Your analysis helped me confidently pull the trigger. I traded in a car that had gained a great amount of value since I purchased it in august of 20’. My plan was to get into the vette and then sell while prices are still high. I wonder if we’ll ever again see 2019 pricing levels?

[ashman]

you all realize this isn't due to original owners - it's due to dealers - just tell them f' off and wait