Buyer’s Remorse Comes for Used Car Owners

At the peak of the COVID supply shortages, many drivers paid well over MSRP for new and used cars. Here’s what they face now since prices have come back down.

Drivers Who Overpaid During the Pandemic Are Most at Risk

During the worst days of the pandemic shortages, new car lots were empty, and even used cars were difficult to come by. Buyers considered themselves lucky if they could find vehicles, and dealerships offered more for used cars than their drivers had paid for them.

Thankfully, those days are over. Now, many Americans are facing the consequences of their pandemic purchases in the form of negative equity.

Dropping Trade-In Values

Over the past several years, drivers could take out auto loans without worrying much about it since their trade-ins were effectively shielded from negative equity when it came time to trade up. Dealers were desperate for inventory. Many paid near the original purchase price for used cars.

Now that things have gotten back to normal, so has depreciation. Drivers can find much better deals on new and used cars than they could just one year ago, but they have to be more careful, as well.

New vehicles are bearing the brunt of the depreciation. Of course, it’s normal for a new car to lose some value as soon as its buyer drives it home. People who have become cavalier about car loans just need to remember what it was like to trade in a vehicle pre-COVID.

How Big Is the Difference?

To put things in perspective, let’s compare the depreciation rates for one- and two-year-old vehicles, which are the ones most heavily impacted by the increase in depreciation.

As of the end of 2023, the average transaction price for a new car traded at the dealer one year later was $6,763 less than during the peak of supply reductions in 2022. While two-year-old vehicles also saw a drop in value, it wasn’t quite as extreme. Owners lost $3,294.

While older used cars aren’t getting hit as hard as newer models, they haven’t escaped completely. A 10-year-old vehicle fetches an average of $1,304 less in trade-in value now compared to 2022.

A Silver Lining for Drivers Who Prefer Used Cars

Many drivers are hurting, and over 20% of new vehicle sales now involve trade-in vehicles with negative equity. That’s higher than it has been in two years. However, there is a silver lining.

Drivers looking for good deals on used cars can find them again. Used car buyers who don’t want to trade in other relatively new vehicles to help with financing are in the best shape.

Currently, the vehicle segments most impacted are large luxury cars and mainstream SUVs. Drivers can still find serious deals, but highly price-sensitive buyers looking for affordable transportation may still have to wait for deep discounts.

The supply of older used cars has yet to rebound. Experts believe the situation may take several years to get completely back to normal. In the meantime, bargain hunters may have to work a little harder to find the right deal.

 

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